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Stocks decline after US inflation data

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The Consumer Price Index added 3.1% from a year ago in January, down from 3.4% in December

Stocks in the US and Europe dipped on Tuesday while the dollar jumped as data showed that US inflation slowed less than expected in January, reducing chances of an early interest rate cut.

The closely watched Consumer Price Index (CPI) added 3.1% from a year ago in January, down from 3.4% in December, the Labor Department said – but analysts had forecasted that the rate could drop below 3.0%.

Meanwhile, the core CPI reading that excludes volatile food and energy prices – and which is more important to policymakers – was stable at a 3.9% annual rise.

The US Federal Reserve has hinted it will likely begin to cut interest rates later this year, but Fed officials have continued to fixate on the central bank’s 2% inflation target.

US Treasury bond yields climbed as futures markets shifted bets against central bank rate cuts in March and May.

The January inflation figures came in hot across the board and that has the potential to spook investors after a big rally over the last few months, said eToro analyst Bret Kenwell.

Stocks have been propelled to new heights in recent months as investors expect a drop in interest rates.

But Wall Street indices spent the entire day in the red, with investors seemingly using the inflation data as an opportunity to take profits. All three major indices declined over 1%.

The inflation report “just stretches out the whole process,” noted Maris Ogg of Tower Bridge Advisors, who described the CPI reading as a “blip.”

I do not see any reason why the economy wouldn’t continue to do reasonably well, Ogg added.

Europe stocks closed down nearly 1%.

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