U.S. inflation accelerated to the fastest pace in four decades last month, data from the Bureau of Labor Statistics indicated Wednesday, as surging rent, used car and travel costs continue to add upward pressure to headline readings.
The headline consumer price index for the month of December was estimated to have risen 7% from last year, up from the 6.8% pace in November and the fastest rate since June of 1982, powered largely by used and new cars and surging rental costs. On a monthly basis, inflation was up 0.5%, the BLS said, with both tallies essentially matching Wall Street forecasts.
So-called core inflation, which strips-out volatile components such as food and energy prices, rose 0.6% on the month, and 5.5% on the year, the highest since February of 1991, the report noted, with the annual reading coming in just shy of the Street consensus forecast.
Federal Reserve Chairman Jerome Powell told lawmakers during hits Senate confirmation hearing on Capitol Hill yesterday that he expects inflationary pressures -- recently dismissed as 'transitory' -- to persist throughout much of the year.
He did not, however, suggest a more hawkish response to the fastest inflation levels since the early 1980s, noting only the he and his colleagues would be "humble but a bit nimble" in executing rate hikes and taking any decision on running-off the Fed's $9 trillion balance sheet.
"The report doesn't change anything for the Fed's policy plans and it has already told the markets that it expects a tight labor market, rising wages and low unemployment to continue," said George Ball, chairman of Houston-based investment group Sanders Morris Harris.
"The market is expecting inflation at a high rate for the next 3-6 months. It's what comes after that period that is likely to sway stock prices," he added. "Subsiding inflation in the second half of this year is the presumption currently, but if that doesn't happen, it will be a shock to the market."
U.S. stocks extended modest gains in the wake of the data release, with futures tied to the Dow Jones Industrial Average indicating a 165 point opening bell gain and those linked to the S&P 500 priced for a 24 point move to the upside.
Benchmark 10-year U.S. Treasury bond yields, meanwhile, slipped to 1.748% ahead of a $36 billion auction later in the session.
The CME Group's FedWatch tool is showing a 74.4% chance of a rate hike in March, up from around 33.6% at the beginning of December. The Atlanta Federal Reserve's GDPNow forecasting tool, a real-time benchmark, suggests the U.S. economy is growing at an 6.8% clip.