Another Inflation Jump Resumes Stocks’ Tumbling Ways

The CPI vaults 7.9% for February, so the S&P 500 returns to retreating.

The description of inflation as transitory is even more of a laughingstock now. A hotter-than-expected inflation report landed with an unwelcome thud this morning: The Consumer Price Index jumped 7.9% year over year in February, a fresh 40-year high.

Stocks greeted these ill tidings by returning to their falling pattern. After a nice pop up Wednesday of2.6%, equities were down on the news, with the S&P 500 descending 1% and the Nasdaq Composite slipping 1.5% at the outset of Thursday trading.

Accelerations in food (up 7.9%) and energy (rising 25.6%) prices led the inflationary climb. Oil in particular, although it has dipped some this week, has been spiraling upward in 2022 as the stock market dropped. Then there’s the war in Ukraine to consider. The war-prompted shrinkage of Russia’s oil and natural gas plus both nations’ wheat in the world markets is increasingly felt in overall price hikes.

In the view of Bill Adams, chief economist for Comerica Bank, “Inflation will accelerate in March and April as the knock-on effects of the Russia-Ukraine war push prices even higher at supermarkets, gas pumps, and on utility bills.”

Before the war, which started February 24, Russia was the globe’s second-biggest oil and natural gas producer, and Russia and Ukraine together exported a quarter of the world’s internationally traded wheat, he writes in a research note. “Disruptions to supplies of those commodities will cause a big hit to U.S. consumer spending power at a time when inflation was already historically high,” Adams warns.

The mood on Wall Street is sour due to inflation’s rampage. “It’s quite possible that year-over-year inflation breaches the psychological benchmark of 10% by mid-summer, causing a breakdown in confidence and hinderance to growth, particularly in more price-sensitive developing markets,” predicts Peter Essele, head of portfolio management at Commonwealth Financial Network.  

If a silver lining exists in the CPI report, used car prices’ 0.2% slipping is it. This category had been skyrocketing. The used car decrease “could signal the beginning of the much-anticipated deceleration in goods prices,” says Charlie Ripley, senior investment strategist for Allianz Investment Management.