The US stock markets remained volatile on Wednesday after the inflation numbers hit three-year high levels. The Dow Jones fell 1.2%, the S&P500 dropped 0.9%, and the tech-heavy NASDAQ index plunged over 1.3% on Wednesday.
The global market cues remained weak as the situation in the Middle East worsened after President Trump said, “Iran will pay the price” for taking a longer time to make a deal with the US.
The US CPI Inflation for May stood at 4.2%, up from 3.8% in the previous month and the highest level since April 2023. The key reason for the sharp uptick in the inflation rate is elevated energy prices. The energy costs jumped 23.5% in May as compared to 17.9% in April. Gasoline prices soared 40.5% as compared to 28.5% gain in the previous month. Lastly, the fuel prices jumped 58.9% vs 54.3% in April.
The inflation rate remains well above the Federal Reserve’s desired target of near 2%. Soon after the inflation data came, the US 10 Y bond yields spiked to 4.55%, but the gains fizzled out soon as the core inflation cooled off to 0.2%, less than the previous month’s increase of 0.4% and below the market expectations of 0.3%.
The broader inflation picture remains as expected, abating the volatility in treasury yields. However, investors stayed cautious as the tensions in the Middle East remain elevated. Investors now turn their focus to upcoming PPI inflation data, which is set to be released on Thursday, and will give more clues about the underlying inflationary scenario. Meanwhile, last week’s labour market data showed resilience in the economy as it added 172,000 jobs.