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#MoneyBeat Why Investors Are Shrugging Off the ‘Crucial’ Inflation Report

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Analysts thought Wednesday’s consumer-price index data would be a “defining moment” for global markets as investors continue to grapple with questions over the path of U.S. inflation.

Instead, markets have brushed off the report, which showed the strongest monthly price gains in five years, saying that seasonal factors have made it difficult to assess how sustainable last month’s price gains are.

The Labor Department’s consumer-price index, which measures what Americans pay for everything from salad dressing to fares on public transportation, rose 0.5% in January after a seasonally adjusted 0.2% gain in December. That’s the largest month-over-month increase since January 2013.

“I suspect that the January spike is mostly seasonal noise,” said Stephen Stanley, chief economist at Amherst Pierpont, in a research note.

January’s CPI increase was driven by higher prices for fuel and gasoline. Analysts also noted that increases for categories like apparel and medical services might have been driven by one-time factors such as the flu epidemic and a brutal stretch of cold weather in January.

“It will be easy for inflation bears to spin a story of rising wage gains lifting inflation,” said Pantheon Macroeconomics in a research note. “That’s a premature judgement, not least because just two components – apparel and medical services – account for the overshoot.”

Apparel prices surged 1.7% from the prior month, the fastest gain since 1990. Analysts at Capital Economics say the cold weather that swept the U.S. in January likely bolstered apparel prices.

BMO Capital Markets, meanwhile, says the increase is “likely a function of the weaker dollar.” A year-long slide in the value of the U.S. dollar has made imports more expensive. Last year, import prices rose 3%, the largest annual increase since 2011.

Also helping lift the overall rate of consumer-price growth in January was a 0.6% rise in medical care costs, which economists say could have been driven by a worsening flu season or by new-year price increases.

Investors initially saw the better-than-expected data as evidence that U.S. inflation is picking up after years of perplexing weakness, a development that would bolster the Federal Reserve’s case for raising interest rates.

U.S. stocks slid in early trading, while the dollar and bond yields spiked as fears about tighter central-bank policy that have rattled markets lately resurfaced.

But markets quickly reversed, with U.S. stocks turning higher and the dollar sliding as investors shruged off the report that analysts at BMO Capital Markets had said could be “a defining moment in the process of gauging the return of inflation in the US economy.”

The unexpectedly large CPI gain–coupled with separate surprise decline in U.S. retail sales–suggest the reports are “deviations from trends instead of shifts in them,” analysts at TD Securities wrote.

“The Fed [is] to likely look through both reports,” TD said.

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