Financial markets were hit this week with negative news on both consumer and producer price inflation. Tuesday’s CPI report showed inflation running at 3.8% on a 12-month basis, well above the Federal Reserve’s 2% inflation target. Even more concerning, the data showed inflation accelerating again after a period of moderation. Then, on Wednesday, the Treasury market was rattled by a much larger-than-expected increase in producer price inflation. For April, PPI rose 1.4%, far above the market expectation of a 0.5% increase.
The central question for financial markets is whether the current spike in inflation is transitory or whether the United States faces a renewed inflation problem that will require the Federal Reserve to raise interest rates.
