On Wednesday, U.S. stocks saw their worst decline since February as the U.S. inflation jumped to its highest level in 13 years. US government bonds also reflected this inflation surprise as yields on 10-year US treasuries increased 0.07% to 1.69%.
In April, consumer prices saw a 4.2% YoY increase, the fastest monthly price increase since 2008 and outpacing analyst expectations of a 3.6% increase. Core inflation, which excludes price fluctuations within energy and food prices, rose 0.9% in April, the largest monthly increase since 1982. Overall, the CPI jumped 0.8% in April, continuing the positive trend after it saw a 0.6% increase in March.
As a result, the S&P 500 fell by 2.14% and the Nasdaq composite lost 2.7% on Wednesday. The energy industry was the only industry sector to see positive gains, while the consumer discretionary and information technology sectors led the declines.
This significant hike in inflation draws concerns that the Federal Reserve would be forced to tighten monetary policy by reducing its $120B worth of monthly bond purchases that have helped boost the markets during the pandemic. The price pressures would also potentially slow US recovery from the pandemic, raising questions as to whether current low interest rates are sustainable.