US stocks tumble on inflation data, Dow ends down 2.7%

Traders work on the floor of the New York Stock Exchange, on June 8, 2022. PHOTO: AFP

NEW YORK (AFP) - Wall Street stocks sank on Friday (June 10) after inflation exceeded expectations in a much-anticipated report that sets the stage for more monetary tightening.

The Dow Jones Industrial Average dropped 2.7 per cent, or around 880 points, to 31,392.79.

The broad-based S&P 500 shed 2.9 per cent to 3,900.86, while the tech-rich Nasdaq Composite Index tumbled 3.5 per cent to 11,340.02.

Friday's report showed the consumer price index (CPI) jumped 8.6 per cent compared to May 2021, topping analyst estimates and up from 8.3 per cent in the 12 months ending in April.

White House officials had warned in recent days that they expected a downcast report as gasoline prices hit new records daily amid the fallout from Russia's invasion of Ukraine.

Prices continued to rise last month for a range of goods, including housing, groceries, airline fares and used and new vehicles, and annual inflation remains at its highest rate since late 1981.

"The market had expected that we'd see at least a plateauing or flattening out of inflation but it seems that inflation pressures continue to build and we've seen a further broadening of price pressures in this report," said Shaun Osborne, a foreign exchange specialist at Scotiabank.

"So it seems more entrenched, stickier kind of price or inflation situation."

Osborne said the report will encourage investor debate on whether the Federal Reserve will shift to a 75 basis point interest rate hike next week instead of the planned 50 basis point increase.

But Osborne believes the Fed will go with its original plan, considering a bigger increase would look "panicky."

The University of Michigan consumer sentiment index - which measures how American consumers feel about the economy, personal finance and business and buying conditions - fell sharply Friday from 58.4 to 50.2, its lowest recorded value.

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