Kuwait- US consumer prices rose higher than expected in January

Kuwait- US consumer prices rose higher than expected in January

Investors had braced for Wednesday's Consumer Price Index data since concerns about firming inflation were blamed in part for the 10-per-cent pullback in the stock market from its January 26 record high.

But those inflation concerns were tempered by data showing USA retail sales fell 0.3 percent last month, the biggest decline in almost a year and in sharp contrast to economists' estimates for a 0.2 percent increase.

The CPI reading, along with a pickup in wage growth last month, supported the view that inflation is accelerating toward the Fed's 2 percent goal.

USA stocks gained on Wednesday, shrugging off an initial sharp dip in premarket trading immediately after the release of US government data that showed consumer prices rose more than expected in January.

The Dow Jones Industrial Average rose 253.38 points, or 1.03 percent, to 24,893.83.

The possibility of additional rate hikes showed up Wednesday in the bond market, where years of low returns have encouraged investors to put their money into stocks. They, along with Netflix (NFLX.O) and Alphabet (GOOGL.O) - collectively called the FAANG stocks - were major contributors to last year's market rally, and all but Alphabet have weathered the recent selloff better than the broader market.

Fear about inflation initially sparked the market sell-off that began February 2, when the Labor Department reported employees' paychecks grew faster than they had in nine years. Investors are also betting that the economy can handle higher borrowing costs. That was biggest monthly gain since 1990.

The NBS said urban inflation rate rose by 15.56 per cent in January 2018 from 16.78 per cent in December 2017, compared with the rural inflation rate, which declined by 14.76 per cent in January 2018 from 15.02 per cent in December 2017.

MSCI's all-country world index of stocks in 47 countries gained 1.42 percent while the pan-European FTSEurofirst 300 index of leading regional shares rose 1.03 percent to close at 1,469.00.

"The number suggests the notion of stagflation, higher-than-expected inflation numbers and weaker-than-expected consumption which is a negative growth in the United States". Equity investors will look to the monthly CPI data much in the same way they have done for the USA employment report, said Walter Todd, chief investment officer at Greenwood Capital in Greenwood, South Carolina.

Investors dumped stocks and bonds in the wake of the report.

Yields on the benchmark 10-year U.S. Treasury note hit a fresh four-year high. The last time the 10-year closed above 3.0% was January 9, 2014.

But for investors, faster inflation makes it more likely that the Federal Reserve will raise interest rates more quickly this year.

The stock market's rise Wednesday coincided with a big drop in Wall Street's "fear gauge", known as the VIX. "It shows the volatility is getting priced out of the market".

Paul Eitelman, an investment strategist at Russell Investments, said it was unlikely the Fed would increase its forecasted rate hikes as such a move would be a bit bold for a new Fed chief and likely be an over-reaction to one data point.

Underpinning confidence among many investors is the belief that the US economy remains strong and that tax cuts enacted this year will spur corporate earnings and lead consumers to spend more.

"The rising inflation expectations shouldn't be considered something to panic about", Ripley adds.

Prices rose significantly in a few parts of the economy.

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