U.S. inflation is HOT; Surges 6.2%, largest increase in 30 years
Financial markets felt the heat Wednesday as inflation for consumers jumped to its highest level in more than 30 years. The consumer price index (CPI), which measures the variations paid by consumers for retail goods, soared 6.2% in October versus one year ago, marking the largest year-over-year increase since the fall of the Berlin Wall (see chart below).
Consumer prices soar
Economists were braced for a significant rise in CPI already, expecting a reading just under 6%. On a monthly basis, CPI rose by .9% versus economists’ expectations of .6%. Even excluding highly commoditized items, inflation still outpaced estimates with CPI Excluding Food and Energy year-over-year coming in at 4.6% versus an estimated 4.3%.
Tuesday, a report on inflation showed that the domestic producer price index (PPI) remained elevated near its highest level in years. PPI Excluding Food and Energy year-over-year was in line with economists’ expectations, rising 6.2%.
The elevated inflation reading, particularly on the consumer side, triggered a selloff in the bond market as investors demanded higher yields. Bond yields and interest rates had been retreating since mid-October as concerns surrounding a slower-than-expected economic recovery settled in. On the day, the yield on the benchmark U.S. 10-year note rose by 14 bps, with 30-year mortgage rates experiencing similar moves. Stock prices fell by the most in a month, as investors speculated that the Fed would have to accelerate tightening to fight off inflation.
Jeremy Collett is Guaranteed Rate’s Executive Director of Capital Markets. Market Updates are designed to provide readers with a high-level yet insightful view of how economic news, events and trends affect mortgage rates and the homebuying process.
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