Wall Street Opens Cautiously Higher on Inflation Relief; Dow up 80 Pts

© Reuters.

By Geoffrey Smith

AiVIF.com -- U.S. stock markets opened cautiously higher on Tuesday after the slowest rise in consumer prices in seven months eased fears that the Federal Reserve will take abrupt action to tighten monetary policy.

Official data showed that prices excluding food and energy rose only 0.1% in August, rather than the 0.3% expected, while the annual core inflation rate fell to 4.0% from 4.3% in July. Overall, prices rose by 0.3% on the month and 5.3% on the year, both marginally lower than expected.

The figures showed cooling demand for used cars, which had been one of the biggest drivers in prices earlier in the year, as well as a drop in airline fares as Covid-19 ate into the strong summer tourist numbers that airlines had been hoping for.  Weakness in those areas was partially offset by a rise in rents, reflecting the surge in house prices over the last year.

By 9:45 AM ET (1345 GMT), the Dow Jones Industrial Average was up 79 points, or 0.2%, at 34,949 points. The S&P 500 was up 0.2% and the Nasdaq Composite was up 0.3%.  

"Effectively we have a moderation in the re-opening hotspots of the past four months," said James Knightley, chief international economist with ING, a note to clients. However, he warned that broader inflationary pressures are unlikely to go away in the next couple of months, saying that headline inflation will stay close to 5% through the first quarter of next year.  Knightley pointed to the Fed's Beige Book research, which last week said that businesses were finding it relatively easy to pass on higher input costs to customers. That was endorsed by the monthly survey of the National Federaion of Independent Business on Tuesday, where 49% of respondents said they are currently raising prices

"Given the decent growth and elevated inflation environment in the U.S., we expect the Federal Reserve to announce the (quantitative easing) taper process in November and expect the Fed to raise interest rates twice in late 2022," Knightley said.