The U.S. inflation rate exceeded expectations in January, and the year-on-year increase in consumer prices reached the highest level in four decades, making it urgent for the Federal Reserve to start raising interest rates. Data from the Labor Department on Thursday showed that the consumer price index (CPI) rose 7.5% in January from a year earlier, up from 7% in December. In January, the CPI rose by 0.6% month-on-month, and prices in various fields such as food, electricity, and housing are all rising. The core CPI, which excludes food and energy prices, rose 6% year-on-year, also the largest increase since 1982, and rose 0.6% month-on-month. Economists polled by Bloomberg expected the CPI to rise 7.3% year-on-year and 0.4% month-on-month.

St. Louis Fed President James Bullard said he supports a cumulative 100 basis point rate hike by early July, including a one-off 50 basis point increase for the first time since 2000, to tackle the worst inflation in four decades. “I would like to have seen a 100 basis point hike by July 1,” Bullard, who has voted on monetary policy this year, said in an interview with Bloomberg News on Thursday. "I was more hawkish by nature, but I raised my expectations considerably about what the committee should do."

U.S. initial jobless claims fell for a third straight week as new single-day coronavirus cases continued to decline, further evidence of a strengthening labor market. Initial jobless claims fell by 16,000 to 223,000 in the week ended Feb. 5, Labor Department data showed on Thursday. The median estimate in a Bloomberg survey was 230,000. Continuing jobless claims fell to 1.62 million for the week ended Jan. 29.

While some ECB officials are starting to turn more hawkish, with some raising the prospect of a rate hike as soon as this year, chief economist Philip Lane defended his view that without more aggressive action , the euro zone's record inflation rate will slow. Stressing that the supply disruptions that have driven prices soaring are a global problem, Lane warned that rate hikes could be another factor hitting regional economies as central banks seek to cement the recovery. "If the bottle is primarily external in nature, then that adds to the case for monetary policy to hold steady,” Lane said in a blog post on Thursday. “As monetary policy guides domestic demand, monetary policy is tightened in response to external supply shocks. It will mean that the economy will face double negative shocks at the same time. A growing number of ECB officials are starting to lose faith in current inflation forecasts, and are emboldened to advocate for rate hikes later this year, according to officials familiar with the matter.

The Bank of Japan offered to buy unlimited amounts of government bonds at a fixed rate, in a bid to dispel weeks of speculation among traders of normalizing its policy. According to a statement on its website, the Bank of Japan will buy 10-year government bonds at 0.25% on February 14. The central bank did so for the first time since July 2018 as yields moved closer to the limits tolerable under the Bank of Japan's yield-curve control policy. Bets on policy normalization have grown in recent months as soaring inflation has prompted central banks to withdraw their pandemic-era stimulus and raise interest rates. The Bank of Japan is an outlier, with Governor Haruhiko Kuroda repeatedly reiterating the need to remain accommodative. “The Bank of Japan wants to restore the credibility of its yield curve control policy framework, which has come under pressure recently as global inflation soars and U.S. Treasuries sell off,” said Valentin Marinov, a strategist at Credit Agricole. "The BOJ is clearly not worried about Japan's soaring inflation, and instead appears to be trying to maintain a favorable funding environment."

China's credit growth accelerated in January, and commercial banks have traditionally made large amounts of new loans at the beginning of the year. Encouraged by regulators, this year set a record. According to data released by the People's Bank of China on Thursday, the scale of social financing increased by 6.17 trillion yuan in January, higher than expected; it was 2.4 trillion yuan in December and 5.2 trillion yuan in the same period last year. New yuan loans were 3.98 trillion yuan in January and 1.1 trillion yuan in December, the highest since the statistics began in 1992; the median estimate of economists surveyed by Bloomberg was 3.7 trillion yuan. At the end of January, the stock of social financing was 320.1 trillion yuan, an increase of 10.5% year-on-year, higher than the 10.3% increase in December, and M2 (broad money supply) increased by 9.8% year-on-year in January, higher than the 9% increase in December.

Risk Warning: The above content is for reference only, and does not represent JRFX’s position. JRFX does not assume any form of loss caused by any trading carried out in accordance with this article. Please consult your financial planner for your investment portfolios and manage your own risk.

JRFX is an online CFD broker providing more than 50 products for Forex, metals and commodities. Open a trading account within a minute. Deposit 100USD and download our MT4 trading platform now!