US inflation soars, prompting fears of interest rate rises

Costs of flights and fuel are soaring in the US

(REUTERS)

INFLATION is soaring in America, prompting more market jitters and fresh talk that interest rates might have to rise, strangling the economic recovery.

The rate of inflation jumped to 4.2% in April up from 2.6% in March. That is the highest since 2008.

The cost of energy, used cars and trucks in particular leapt. So did airfares.

And by far more than most economists were predicting.

While that inflation is a sign that the economy is swimming back into life, it could spook the US Federal Reserve into raising rates, increasing borrowing costs in the process.

At the moment, the Fed is still insisting that the increase in inflation is temporary.

The Bank of England has a similar stance.

Seema Shah, chief strategist at Principal Global Investors, said:

“US CPI inflation has come in meaningfully higher than expected and will further stoke concerns that the Fed has mis-read the inflation story. Interestingly, equity markets have responded sharply, while bond markets are essentially unmoved.”

Shares around the globe tumbled on Tuesday as investors began to fret about what today’s figures might show.

The Dow Jones fell today the minute trading began, down 143 points at 34,136.

Daniele Antonucci, chief economist at Quintet Private Bank, said:

“Today’s upside surprise in US consumer price inflation follows several other higher-than-expected increases, from China’s producer prices to Germany’s wholesale prices. Markets appear somewhat nervous as more and more statistical releases suggest rising inflation. Our view is that inflation is rising because of transitory factors, such as supply bottlenecks.”

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