Stocks fall sharply on inflation news

Stock markets fell sharply Friday in response to news that inflation is continuing to rise, hitting a 40-year year high of 8.6 percent.

The Dow Jones Industrial Average of major U.S. stocks fell nearly 2.75 percent to hit 31,392.

The S&P 500 index fell 2.91 percent to 3,900, and the technology-heavy Nasdaq dropped more than 3.5 percent to fall below 11,340.

The bottom fell out of markets as a result of the latest consumer price index (CPI) data from the U.S. Department of Labor. Analysts were hoping that the CPI would continue to decrease as it did last month from an annual rate of 8.5 percent in March to 8.3 percent in April.

Instead, the CPI gained 0.3 percentage points from April to hit 8.6 percent in May.

The rise constitutes a major blow to investor confidence, since it shows that prices, which have jumped as most pandemic-related restrictions have been lifted, have yet to hit a ceiling and could continue to rise.

This is almost sure to result in additional interest rate increases and balance sheet slashes by the Federal Reserve Bank, which has already signaled it will continue to raise rates at meetings later this year.

President Biden, who has said that fighting inflation is his top economic priority, spoke at the Port of Los Angeles on Friday, a site of many of the shipping bottlenecks and supply chain shocks that have been the core driver of rising prices.

“I understand Americans are anxious, and they’re anxious with a good reason,” he said. “I was raised in a household where when the price of gasoline rose precipitously, it was a discussion at the table. It made a difference.”