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Stocks tumble on opening as consumer prices jump, adding to inflation fears

Jim Puzzanghera, Los Angeles Times on

Published in News & Features

WASHINGTON -- Consumer prices jumped more than expected last month, the Labor Department said Wednesday, adding to the fear of higher inflation that has roiled financial markets in recent days.

The consumer price index increased 0.5 percent in January, up from 0.2 percent the previous month and well above analyst estimates. The annual inflation rate was 2.1 percent, the same as it was for the 12 months that ended Dec. 31.

Higher prices for energy, particularly gasoline, as well as for apparel fueled the sharp increase in the index, which recorded its largest most month-over-month jump since September.

Although the consumer price index is not the most important measure of inflation, its release Wednesday took on out-sized importance as investors scrambled for any new details about the direction of the economy.

Futures for the Dow Jones industrial index were up about 150 points before the Labor Department released the consumer price index. The higher than expected inflation led those Dow futures to drop significantly.

The Dow opened down more than 100 points after three-straight positive trading sessions.

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Concerns that inflation is accelerating, which could lead to higher interest rates, caused last week's severe stock market declines. And the new data on consumer prices rekindled those concerns Wednesday even though the annual inflation rate held steady.

"January inflation did come in hot and higher than expected, there's no doubt about it ... but it's not too alarming," said Scott Anderson, chief economist at Bank of the West.

But he noted the Commerce Department reported Wednesday that retail sales fell unexpectedly in January. posting their biggest drop in nearly a year. Sales fell 0.3 percent after a flat December, as Americans cut back on purchases of automobiles and building supplies.

Anderson said the disappointing retail sales data indicate that inflationary pressures from higher consumer spending haven't developed, despite many workers receiving one-time bonuses linked to the tax cut legislation enacted late last year,

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