US consumer inflation jumped sharply in the first month of 2018, the government reported Wednesday, spooking global stock markets amid concerns that interest rates will rise more aggressively this year.
The consumer price index (CPI), which tracks the costs of household goods and services, rose 0.5 percent last month, exceeding analyst expectations, according to the Labor Department’s closely-watched report.
The core index, which excludes volatile food and fuel categories, rose 0.3 percent, the largest increase since January 2017.
The annual CPI increase held steady at 2.1 percent, with the core rate up 1.8 percent, also the same as in December, the report said.
Meanwhile, falling auto sales in January helped drive down the pace of consumer spending, which fell by the largest amount in 11 months as outlays for hurricane reconstruction subsided.
Early in the trading day, the long anticipated uptick in consumer prices prompted US and European stock markets to slip, as the data solidified worries the Federal Reserve could tighten interest rates more than the expected three times this year amid strong job growth.
But Wall Street quickly recovered their losses to record solid gains, with the broad-based S&P 500 gaining 1.3 percent by the close.
The Fed is expected to raise the benchmark lending rate in March, but with inflation finally on the horizon after a baffling absence over the last year, economists now say the central bank could make four rate hikes in 2018.
Some economists say the initial hysteria on Wall Street was overblown, as rising consumer prices were long expected.
‘Not as bad as it looks, but bad enough for the stock market,’ Ian Shepherdson of Pantheon Macroeconomics said of the CPI report.
And he said the data was skewed by some big one-month jumps that could be reversed, notably in apparel and medical services.
‘Coming so soon after the outsized January wages numbers, it will be easy for inflation bears to spin a story of rising wage gains lifting inflation,’ he said in a research note. ‘That’s a premature judgment.’
Retail sales fall
In a separate report Wednesday, the Commerce Department said retail sales in January fell 0.3 percent, seasonally adjusted, after holding flat in December.
The result is subject to revision but fell far short of analyst expectations and could suggest consumer demand is reverting to a slower trend at the start of the year, which takes the sting out of the CPI rise.
‘This was a downright awful report, with sales falling almost 1% short of expectations between the January miss and the December revision,’ said FTN Financial chief economist Chris Low.
American consumers spent an estimated $492 billion last month, which was still a solid 3.6 percent higher than January 2017.
But vehicle and parts sales fell 1.3 percent from December, the largest drop since August, even as gas stations saw a healthy bump, rising 1.6 percent in the month.
‘The fact gasoline and ‘miscellaneous’ were the strongest components… and so many other components were flat, does not speak well for strong consumption,’ Low said.
Within the numbers, there also were signs that spending on reconstruction after a spate of late summer hurricanes continued to decline. 
Sales of building materials and garden supplies saw their largest monthly decrease in nearly two years, giving up 2.4 percent. And home furnishings fell 0.4 percent, after a 1.1 percent drop in December.
Online retail had a flat January, while sales at long-suffering department stores rose 0.8 percent.