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Yesterday, Wall Street rejoiced in better-than-expected news on the inflation front. On Tuesday, the Labor Department reported that despite huge jumps in energy prices, wholesale inflation remains surprisingly stable. This lent credibility to those on Wall Street who believe the Federal Reserve will most likely end its two-year-long series of interest-rate hikes come June.
But this morning, the government issued its latest report on retail inflation–and there, the news wasn't so good.
The Labor Department's consumer price index, which gauges changes in retail prices, jumped a bigger-than-expected 0.6 percent last month. This means that over the past 12 months, the CPI has increased 3.5 percent. The big problem for consumers, of course, was energy costs, which have soared nearly 18 percent over the past year.
But even core consumer prices, which strip out volatile food and energy costs, are on the rise. The core CPI rose 0.3 percent in April, marking the second straight month of uncomfortably high gains in core consumer prices. And over the past 12 months, core consumer inflation has grown 2.3 percent. That's up from 2.1 percent in March and brings inflation squarely back onto the Fed's radar screen.
While there's still a good chance that the Fed will pause in June–to wait and see if the 16 previous interest-rate hikes are having a delayed effect on the economy–this morning's CPI report does resurrect uncertainties surrounding the nation's interest-rate policy.
This caused panic selling on Wall Street early today. The Dow Jones industrial average fell more than 140 points by late morning. This means the Dow—which last week came within 100 points of setting a new all-time record–has fallen 400 points in the past five days.
