The market has been troubled recently by building inflationary pressures. Investors are concerned that rising prices may hurt corporate profits and force the Fed to tighten its monetary policy sooner than anticipated. Worse, investors fear the Fed may have to react more aggressively if it waits too long to act.
After back-to-back losses, the retreat in stock prices culminated on Wednesday, following the release of the higher-than-anticipated Consumer Price Index (CPI) report.
Stocks managed to claw back some of the week’s losses with a Thursday-Friday rebound, sparked by investors doing some bargain hunting.
Consumer Prices Spike
Wednesday’s release of April’s CPI inflamed investors’ inflation fears, as consumer prices rose 0.8% in April and jumped by 4.2% year-over-year. These numbers were above expectations.4
April price increases were led by a remarkable 10% increase in used cars, with additional pockets of sharp increases, notably in transportation services and commodities. Perhaps equally concerning is that energy costs showed a decline during April, a price weakness that may reverse in the coming months.5
Core inflation, which excludes the more volatile food and energy prices, was up a more modest 3.0% from April 2020.6
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