NEW YORK (AP) — Stocks are sinking on Wall Street and Treasury yields are moving sharply higher as markets shudder after another hot reading on inflation. Surging prices for gas, food and other necessities sent consumer prices jumping 8.6% last month compared with a year ago, more than expected and the biggest yearly increase in more than four decades. That’s sure to keep up pressure on the Federal Reserve to aggressively slow down the economy in an effort to force down inflation. The S&P 500 lost 1.9% in early trading, on track for its ninth weekly loss in the last 10.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
NEW YORK (AP) — U.S. futures slipped Friday after the government reported that inflation surged 8.6% in May compared with last year, even more than economists had expected.
Futures for the Dow Jones industrials slid 1% and futures for the S&P 500 skidded 1.2% after the government released its consumer price index report.
U.S. benchmarks are headed for their eighth week of losses in the past nine weeks.
Economists had expected the consumer price index to show that inflation slowed a touch to 8.2% in May from 8.3% a month earlier. Hope that inflation had already peaked in light of the Federal Reserve's recent rate hikes was quickly dashed.
In the U.S., the Federal Reserve meets for two days next week and most economists and analysts expect the central bank to raise its main borrowing rate by another half point. It already raised that rate by a half-point on May 4, its most aggressive move since 2000 and double the usual amount of increase.
On Thursday, the European Central Bank said it would raise interest rates next month for the first time in more than a decade. Another hike is set for September, possibly by double July’s increase, and the central bank will also halt its bond-buying program next month.
It’s part of a growing global tide where central banks are removing the ultra-low interest rates that supported borrowing, economic growth and stock prices through the pandemic and also flooded the markets with investments seeking higher returns. Now, central banks are focused on slowing growth to quell four-decade high inflation.
The risk is that such moves could cause a recession if they’re too aggressive. And higher interest rates tend to pull share prices lower.
A big factor in inflation is higher gasoline prices, which have been putting a tighter squeeze on both companies and households, upping the pressure on budgets. Crude oil prices are up by roughly 60% for the year. Much of the jump is due to Russia’s invasion of Ukraine.
As of early Friday, the AAA auto club reported the national average for a gallon of regular gas in the United States hit $4.99. In California, the average price per gallon is $6.42, AAA estimated.
Benchmark U.S. crude oil gained 37 cents to $121.88 per barrel in electronic trading on the New York Mercantile Exchange. It gave up 60 cents to $121.51 on Thursday.
Brent crude oil, the pricing standard for international trading, added 35 cents to $123.42 per barrel.
Shares in Europe were sharply lower as well, Germany’s DAX lost 1.8% and Britain’s FTSE 100 slipped 1.7% at midday, while the CAC 40 in Paris gave up 2.1%.
In Asian trading, markets in mainland China were lifted by news that inflation remained subdued at 2.1% in May.
The Shanghai Composite index added 1.4% to 3,284.83. With price increases below the government's 3% target, Chinese leaders have more leeway to adjust policies to counter a prolonged economic slowdown worsened by widespread restrictions imposed to counter outbreaks of coronavirus.
Tokyo's Nikkei 225 index lost 1.5% to 27,824.29 while the Kospi in Seoul shed 1.1% to 2,595.87. In Australia, the S&P/ASX 200 declined 1.3% to 6,932.00. Hong Kong's Hang Seng slipped 0.3%, shedding early gains, to 21,806.18.
In another market-related move, the China Security Regulatory Commission issued a statement saying it has not yet evaluated and researched reviving a plan by fintech company Ant’s Group’s to conduct an initial public offering. That countered a report saying approval of the IPO was pending, but the commission said it did support share listings of “qualified platform companies" on domestic and overseas markets.
The government's quashing of Ant's earlier effort to launch an IPO came amid a broad crackdown on e-commerce giant Alibaba and other big technology companies that has buffeted markets, especially in Hong Kong where many such companies are traded.
In currency dealings, the dollar weakened to 133.97 Japanese yen from 134.35 yen. The euro fell to $1.0574 from $1.0619.