Wall Street Drops as Inflation Tops Expectations

Stocks were lower on Wall Street Wednesday after new figures showed inflation rose faster than expected, raising the specter of a more intense pace of interest rate increases than investors had anticipated.

The decline was the latest in a roller-coaster start to the year for the United States stock market. Wall Street indexes hit all-time highs in January, driven in large part by a bevy of positive economic data, a new tax law that would drastically cut the overall corporate tax rate, and years of easy access to money as a result of central bank policies.

But a long-running bull market has reversed sharply in the past two weeks. Central banks appear to be tightening monetary policy, which would raise the cost of borrowing and could eat into corporate profits, and data suggests that wage growth is accelerating in the United States. Several days of sell-offs last week pushed the United States stock market into a correction, indicating a severe downward trend.

The latest drop reflected the release of January inflation data on Wednesday, which showed prices rose 2.1 percent last month compared to the same period a year ago, beating analysts’ expectations.

The yield on the United States Treasury’s 10-year note rose sharply on the inflation report, touching 2.88 percent before declining somewhat.

Though the inflation data was countered somewhat by unexpectedly poor retail sales figures, the accelerating pace of inflation in the United States suggested the Federal Reserve could quicken its pace of interest rate increases.

It is the latest sign that central banks in Europe and the United States plan to raise interest rates after keeping them at or near historic lows for years, a shift that is weighing on stocks. The low rates were intended to bolster economic growth in the wake of the financial crisis, pushing market rates lower and helping companies borrow more cheaply.

The Bank of England was the latest to warn of a shift, saying last week after a meeting of its monetary policy committee that it may have to raise interest rates “somewhat earlier and by a somewhat greater extent” than it had estimated late last year.

The comments contributed to rising yields on government bonds, which move inversely to prices. That can make borrowing money more expensive not just for governments, but also for companies.

Stock markets in Asia and Europe showed limited movement on Wednesday. Japan’s benchmark index, the Nikkei 225, was down less than 0.5 percent at the close, while markets in London, Frankfurt and Paris were up slightly in afternoon trading in Europe.

Content originally published on https://www.nytimes.com/2018/02/14/business/stock-markets-inflation.html by PRASHANT S. RAO