US consumer inflation jumped sharply in the first month of 2018, the government reported Wednesday, spooking global stock markets amid concerns that interest rates will rise more aggressively this year.
The consumer price index (CPI), which tracks the costs of household goods and services, rose 0.5 percent last month, exceeding analyst expectations, according to the Labor Department's closely-watched report.
The core index, which excludes volatile food and fuel categories, rose 0.3 percent, the largest increase since January 2017.
The annual CPI increase held steady at 2.1 percent, with the core rate up 1.8 percent, also the same as in December, the report said.
Meanwhile, falling auto sales in January helped drive down the pace of consumer spending, which fell by the largest amount in 11 months as outlays for hurricane reconstruction subsided.
Early in the trading day, the long anticipated uptick in consumer prices prompted US and European stock markets to slip, as the data solidified worries the Federal Reserve could tighten interest rates more than the expected three times this year amid strong job growth.
But Wall Street quickly recovered their losses to record solid gains, with the broad-based S&P 500 gaining 1.3 percent by the close. The Fed is expected to raise the benchmark lending rate in March, but with inflation finally on the horizon after a baffling absence over the last year, economists now say the central bank could make four rate hikes in 2018.
Some economists say the initial hysteria on Wall Street was overblown, as rising consumer prices were long expected.
"Not as bad as it looks, but bad enough for the stock market," Ian Shepherdson of Pantheon Macroeconomics said of the CPI report.
And he said the data was skewed by some big one-month jumps that could be reversed, notably in apparel and medical services.
"Coming so soon after the outsized January wages numbers, it will be easy for inflation bears to spin a story of rising wage gains lifting inflation," he said in a research note. "That's a premature judgment."
In a separate report Wednesday, the Commerce Department said retail sales in January fell 0.3 percent, seasonally adjusted, after holding flat in December.
The result is subject to revision but fell far short of analyst expectations and could suggest consumer demand is reverting to a slower trend at the start of the year, which takes the sting out of the CPI rise.
"This was a downright awful report, with sales falling almost 1% short of expectations between the January miss and the December revision," said FTN Financial chief economist Chris Low. American consumers spent an estimated $492 billion last month, which was still a solid 3.6 percent higher than January 2017.