Wall Street shrugged off signs of building US inflation despite lingering fears that a rapid increase in prices would force the Federal Reserve to raise interest rates.
Official US data showed the seasonally adjusted consumer price index for January rose 0.5% as households paid more for petrol, rental accommodation and healthcare. The annual rate of growth in prices held steady at 2.1% against economists’ expectations for a fall to 1.9%.
The Dow Jones Industrial Average rose more than 100 points in afternoon trading in New York, having initially fallen slightly following the fresh inflation figures. The Dow has been climbing this week after previously plunging by more than 1,000 points on two separate days earlier this month following early readings from the US jobs market showed rising wage growth, which economists said was likely to push up inflation and force the central bank to raise rates.
However, the latest figures prompted a sell-off in US government bonds, sending yields – which rise as prices fall – to the highest levels in four years at more than 2.9%.
Inflation last month was driven by rising oil prices, which have rebounded on strong global demand in recent months. Food prices also rose in January, which economists said was likely as a result of the dollar falling in value. Sterling rose by about 0.7% on Wednesday to almost $1.40, while the FTSE 100 closed up almost 46 points to 7,213.97.
Economists at the consultancy Capital Economics said the stronger than expected reading on US inflation would force the Fed to raise borrowing costs a total of four times this year, beginning with a 25 basis point rise in March – the first under new Fed chairman Jerome Powell, who replaced Janet Yellen earlier this month.
However, excluding food and fuel, the CPI rose by 0.3%, while the annual rate was unchanged at 1.8% – below the Fed’s target rate of 2%. That may have soothed investors’ fears, according to Chris Beauchamp, chief market analyst at IG. “It’s too early to start pencilling more rate hikes from the new Powell-era Fed,” he said.