Core US inflation rose to a 40-year high, prompting a major hike in the Fed; stock futures fall

 Core US inflation rose to a 40-year high, prompting a major hike in the Fed; stock futures fall

A decline of 8.1% annually but all eyes are on 'core' readings that do not include food and energy.

• US inflation data: US stock futures declined and Treasury yields rose after inflation data topped projections

A key measure of US consumer prices rose to a 40-year high in September, underscoring the persistent, increased inflation that is squeezing homes and pushing the Federal Reserve toward another aggressive rate hike.

The main consumer price index, which does not include food and energy, rose 6.6% from a year earlier, the highest level since 1982, US Labor Department data showed on Thursday. From a month earlier, the core CPI climbed 0.6% for the second month.

The overall CPI rose 0.4% last month, and was up 8.2% from a year ago.

US stock futures declined and Treasury yields rose after inflation data topped estimates. Dollar rose.

Futures on the S&P 500 erased a 1% gain and were down more than 2% last month after showing a renewed rise in consumer prices.

Bets rose that the US Fed would raise rates by three-quarters of a percent when it meets next month. The Nasdaq 100 declined 3%.

Inflation figures will determine how far the Fed's policy-tightening cycle will last.

Upcoming monthly consumer-price data could determine whether the Federal Reserve raises interest rates for the fourth-straight. Thursday's figures are expected to drop a modest 8.1% annually, but all eyes are on 'core' readings that do not include food and energy. It is growing 6.5% from a year ago, matching the rate seen in March which was the highest since 1982.

Any indication that price pressure remains elevated could send the market into sell mode on Wednesday, when an above-forecast producing prices erased a temporary stock rally. It would also boost Treasury yields and the dollar, potentially adding to its 15% year-over-year gain.

However investors noted that the Fed is already more or less paying the price for raising rates by about 75 basis points next month and most markets have fallen sharply in recent weeks.

"Given the negative bond and equity moves over the past month, the possibility of a reversal of all these moves on the softer CPI is significant," Adam Cole, chief currency strategist at RBC Europe in London, wrote in a research note.

Meanwhile, retail inflation in India hit a five-month high of 7.41% on a year-on-year basis in September, as food prices rose, data showed on Wednesday.

The numbers missed the RBI target for the ninth consecutive month and the December meeting raised the prospect of another rate hike.