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Retail Sales Roar In January As COVID Stimulus Boosts Spending, Reviving Inflation Debate

The U.S. government's $900 billion December stimulus bill looks to have lifted retail sales in the first month of the year, and with another $1.9 trillion on the way, investors are starting to worry about rising rates of inflation alongside the broader recovery.

U.S. retail sales soared past Wall Street forecasts Wednesday, rising for the first month in three, as consumers snapped-up post holiday deals with government stimulus checks and revived market concerns for faster near-term inflation.

January retail sales were marked 5.3% higher from last year to a collective $568.2 billion, the Commerce Department said, well ahead of the Street consensus forecast of a 1.1% gain and December's downwardly-revised total of $539.7 billion, a 1% decline from the previous year. Stripping out auto and gasoline sales, retail sales were up 5.9%, the Commerce Department report noted.

Benchmark 10-year Treasury bond yields hit a fresh 52-week high of 1.326% immediately following the retail sales data, with upward pressure coming from a producer price inflation reading that showed personal consumption demand rising by a stronger-than-expected 1.3%.

U.S. equity futures weakened following the data releases, with futures contracts tied to the Dow Jones Industrial Average, which closed at a record high 31,522.75, indicating a modest 30 point dip while those linked to the S&P 500 suggest an 8.5 point pullback for the broader benchmark. Nasdaq Composite futures are also indicating a 75 point retreat.

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Rising oil and copper prices, buoyed by cold weather in Texas and global economic recovery hopes, also added to the inflation mix, as did a stronger U.S. dollar as it pushed emerging market currencies lower and added to energy costs in their respective economies.

Comments from San Francisco Fed President Mary Daly did little to soothe the market's concerns after she told an event in the California city that inflation isn't "a risk we should think about right now".

With minutes from the Fed's January meeting -- published this afternoon -- likely to echo that sentiment, investors seem reading to re-set expectations for market interest rates and rising consumer prices in the months ahead by trimming equity market positions.