US inflation rose more than expected in January, putting more pressure on the Federal Reserve to raise interest rates.
The consumer price index climbed 7.5% over the last twelve months, its biggest year-on-year increase since February 1982.
That compares to 7% in December, itself the biggest rise since June 1982.
Analysts had been expecting a figure of 7.2% to 7.3%.
Core inflation, excluding volatile food and energy prices, also came in higher than anticipated at an annualised 6%.
The Fed is widely expected to raise rates by 25 basis points next month although many now think that could be 50 basis points.
Not so long ago, the Fed was expected to lift rates perhaps as much as two or three times this year.
Now some are suggesting perhaps five or six hikes, with a 100 basis point increase by July.
“Prior to today’s inflation report, bets had risen to a one-in-three chance of a 50-basis-point hike, which would be the first since 2000,” said Fawad Razaqzada, market analyst at Think Markets. “Well, you can safely assume that those bets have been ramped up even further now.”
“For what it is worth, I don’t think we will see the Fed hiking by half a percentage point, but today’s 7.5% CPI print does put a lot of pressure on the Fed to walk the walk in terms of tightening, having done the talking,” he added.
The analyst said that five rate increases for 2022 “is a real possibility now.”
The news initally sent US markets sharply lower, with the Dow Jones Industrial Average falling to 35,479 before recovering to 35,751, down 0.04%.
The Nasdaq Composite, full of tech companies affected by higher rates, is down 0.46% and the S&P 500 has fallen 0.33%.
In the bond market, US Treasury 10 year yield hit 2% for the first time since August 2019.