US stock futures drop 7.5% after January inflation, highest in 40 years

At 08:37 a.m., the Dow E-Minis were down 120 points, or 0.34%, the S&P 500 E-Minis were down 35.5 points, or 0.78%, and the Nasdaq 100 E-Minis were down 197 points, or 1.31%.

Inflation over the past year has risen to its highest rate in four decades, troubling US consumers, eroding wage growth and reinforcing the Federal Reserve’s decision to begin raising lending rates in the economy. Is.

The Labor Department said consumer prices rose 7.5% last month compared to 12 months earlier, the sharpest year-on-year increase since February 1982. Shortages of supplies and workers, heavy doses of federal aid, ultra-low interest rates and strong consumer spending combined to accelerate inflation over the past year.

When measured from December to January, inflation was 0.6%, similar to the previous month and higher than economists expected. Prices were up 0.7% from October to November and 0.9% from September to October.

There is some indication that inflation will slow significantly any time soon. Most of the factors that have been pushing prices up since last spring have remained in place: wages have been rising at the fastest pace in at least 20 years. Ports and warehouses have been overwhelmed as hundreds of workers fell ill at the ports of Los Angeles and Long Beach last month. As a result many products and parts remain in short supply.

The steady rise in prices has left many Americans unable to afford food, gas, rent, childcare and other necessities. Broadly speaking, inflation has emerged as the biggest risk factor for the economy and poses a serious threat to President Joe Biden and congressional Democrats as the midterm elections later this year.

The Fed and its chairman, Jerome Powell, have increasingly moved away from the ultra-low-interest rate policies the Fed has adopted since the pandemic ravaged the economy in March 2020. Powell indicated two weeks ago that the central bank would likely raise its benchmark. Short-term rates at times this year, the first increase is almost certainly coming in March. Investors have raised at least five rates for 2022.

Over time, those higher rates will drive up the cost of a wide range of borrowings, from mortgages and credit cards to auto loans and corporate credit. For the Fed, the risk is that it could trigger another recession, while continuing to tighten credit for consumers and businesses.

Several large corporations have said in conference calls with investors that they expect the supply crunch to continue until at least the second half of this year. Levi’s companies from Chipotle have also warned that after doing so in 2021, they will raise prices again this year.

Chipotle said it increased menu prices by 10% to offset rising costs of beef and transportation, as well as higher employee wages. And the restaurant chain said it would consider further price hikes if inflation continues to rise.

“We keep thinking beef is going to go up and then down, and it hasn’t happened yet,” said John Hartung, the company’s chief financial officer.

Executives at Chipotle, as well as Starbucks and a few other consumer-facing companies, have said that their customers have not been surprised by the high prices so far.

Levi Strauss & Co. raised prices last year by about 7% from 2019 levels because of rising costs, including labor, and plans to do so again this year. Still, the San Francisco-based company has upgraded its sales forecast for 2022.

“Right now, all the signs we’re seeing are positive,” CEO Chip Berg told analysts.

Many small businesses, which typically have lower profit margins than larger companies and are struggling to match their large salary increases, are also raising prices. The National Federation for Independent Business, a trade group, said its monthly survey found that 61% of smaller companies raised their prices in January, the largest proportion since 1974 and just 15% before the pandemic.

Bill Dunkelberg, chief economist at the NFIB, said, “More small business owners begin raising prices in an effort to pass on higher inventory, supply and labor costs.” “In addition to inflation issues, owners are also increasing the compensation on record—higher rates to attract qualified employees to their open positions.”

Those wage benefits may eventually force additional price increases as companies seek to cover the cost of higher wages.

Over the past year, sharp increases in the prices of gas, food, autos and furniture have strained the budgets of many Americans. In December, economists at the University of Pennsylvania’s Wharton School estimated that buying the same basket of goods and services would cost the average family $3,500 more than in 2020.

European and Japan benchmarks

European markets fell after US inflation data came out. Germany’s DAX 0.1% and France’s CAC 40 fell 0.5% after earlier gains.

Japan’s benchmark Nikkei 225 closed 0.4% higher at 27,696.08. Australia’s S&P/ASX 200 rose 0.3% to 7,288.50. South Korea’s Kospi rose 0.1% to 2,771.93. Hong Kong’s Hang Seng gained 0.4% to 24,924.35, while the Shanghai Composite gained 0.2% to 3,485.91.

This story has been published without modification in text from a wire agency feed.