Wednesday’s report on the U.S. consumer price index will be the most closely watched in recent memory, with investors seeking to understand the recent plunge in the stock and bond markets. They’ll probably need to look beyond the main numbers for the full story.
The core CPI, which excludes food and energy, rose 1.7 percent in January from a year earlier, compared with 1.8 percent in December, according to the median projection of economists ahead of the Labor Department data. Viewed another way, though, inflation may be higher: A 0.2 percent monthly rise in the same index, as economists forecast, would result in a three-month annualized rate of 2.3 percent, according to analysts at Wells Fargo Securities. That would match the fastest pace since February 2017.
On top of that, jittery financial markets could convulse on any sign that inflation is exceeding expectations at a rate that may spur the Federal Reserve to quicken its plans for tightening. The threat of higher interest rates after strong job and wage figures on Feb. 2 sent Treasury yields spiking and started a rout in equities that pushed them into the first correction in two years. Bonds and stocks have been in a tug-of-war since, as battered equity investors seek the haven of fixed income, driving yields back down.
S&P 500 futures pointed to a retreat in stocks at the market open after two days of gains, while bonds climbed, with the yield on the 10-year Treasury note declining after touching 2.89 percent on Monday.