A key gauge of US consumer prices advanced to a 40-year high in September, underscoring persistent, elevated inflation that’s squeezing households and pushing the Federal Reserve toward another aggressive rate hike. A total of 142 basis points of rate hikes are now priced in for the next two policy meetings, just short of consecutive three-quarter-point hikes. The core consumer price index, which excludes food and energy, increased 6.6% from a year ago, the highest level since 1982, according to data released by the US Labor Department showed Thursday. From a month earlier, the core CPI climbed 0.6% for a second month. The overall CPI rose 0.4% in September compared to August, twice the 0.2% projected by analysts even as the annual rate slowed slightly to 8.2% from 8.3%.

Futures fall after hot consumer prices data

US stock futures tumbled and Treasury yields spiked higher after the inflation data topped estimates. The dollar rallied.

At 8:33 am ET, Dow e-minis were down 297 points, or 1.02%, S&P 500 e-minis were down 54.5 points, or 1.52%, and Nasdaq 100 e-minis were down 265.5 points, or 2.45%. Moments before the data, Dow e-minis were up 285 points, or 0.97%, S&P 500 e-minis were up 38 points, or 1.06%, and Nasdaq 100 e-minis were up 93.5 points, or 0.86%.

Markets had briefly taken support from a report that the British government was discussing making changes to its fiscal plan that spooked global financial markets when it was announced last month.

Big Fed hike bets

Bets rose that the US Fed will raise rates by three-quarters of a percentage point when it meets next month. Those on the Nasdaq 100 lost 3%. The inflation data will determine how much further the Fed’s policy-tightening cycle will run. Upcoming monthly consumer-price figures may determine if the Federal Reserve delivers a fourth-straight outsized hike in interest rates. Thursday’s data is expected to show a slight deceleration to 8.1% annually but all eyes are on the ‘core’ reading that excludes food and energy. This is seen rising 6.5% from a year earlier, matching the rate seen in March that was the highest since 1982. Any sign that price pressures remain elevated may send markets into sell mode, as on Wednesday, when an above-forecast producer prices reading erased a tentative stock rally. It would also boost Treasury yields and the dollar, potentially adding to its 15% year-to-date gain. However investors note the Fed is already more or less priced to raise rates by about 75 basis points next month and most markets have fallen sharply in recent weeks.

Source: Livemint