High US inflation stoked worries that the Fed and the RBA will prolong their interest rate tightening cycles, with traders expecting four cash rate increases in Australia.
meaning inflation is accelerating again.The core PCE deflator rose 0.6 per cent in January, above the 0.4 per cent forecast. On an annual basis, the core measure gained 4.7 per cent, against the 4.3 per cent expected.The core PCE deflator, which is heavily tracked by the Fed, spooked investors who fear that inflation is going in the wrong direction.
Australian shares fell, tracking a similar tone on Wall Street as investors reassessed their views about the resilience of the global economy. “The recent run of strong US CPI, retail sales, non‑farm payrolls and PCE deflator has encouraged market participants and the Federal Open Markets Committee to downplay recession risks,” said Joseph Capurso, head of Australian economics at CBA. “On our estimates, most markets are not pricing a recession. By contrast, an important part of our currency view is the US economy will enter recession this year.
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