US consumer prices jumped last month, raising new fears in financial markets that inflationary pressures are intensifying and that the Federal Reserve may be forced to raise interest rates more aggressively to slow the frantic pace of economic growth.
The stock market fell sharply on the news. The Dow Jones closed down 616.23 at 10,307.32 and the technology-dominated Nasdaq composite index plunged 355.10 to 3,321.68. The Nasdaq has now lost more than 30 per cent from its peak early last month.
European equity markets also fell, but bond prices were mostly unchanged.
Consumer prices, excluding the volatile food and energy components, leaped by a seasonally adjusted 0.4 per cent in March, the Labour Department reported yesterday. The rise equalled the largest monthly increase in core consumer prices in the past five years.
The most worrying aspect of the figures was that in the first three months of the year, core prices rose at an annual rate of 3.2 per cent, the fastest three-monthly pace of increase in more than six years.
Overall consumer prices rose by 0.7 per cent last month, but that figure was distorted upwards by a 4.9 per cent surge in energy prices, as the recent increases in world oil prices fed through to American consumers.
But the real concern focused on the core rate, where economists said the large rise seemed to reflect a broadening out into other sectors of the economy of the oil price increase.
Among the largest rises were prices for hotel accommodation and transport, notably air fares.
"The detail of this report makes your eyes pop out," said Mr Stephen Cecchetti, of Ohio State University, formerly the chief economist with the New York Federal Reserve. "What appears to be happening is that the factors that had depressed prices in the past few years the rising dollar, weakness in the global economy and falling commodity prices are no longer with us," he added.
Adding further to the concern about inflation pressures is more evidence in the recent days that the US economy continues to barrel along at full tilt. Retail sales figures published on Thursday and a separate report yesterday from the Federal Reserve that showed a 0.3 per cent gain in industrial production last month, suggested gross domestic product probably grew in the first three months of the year by around 6 per cent following a 7.3 per cent increase in the fourth quarter of 1999.
And there have been growing signs that wage increases has been accelerating in the last few months.
According to the latest margin debt figures released yesterday, US investors continued to borrow at record levels, a trend that is believed to be adding to recent stock market volatility.
Debit balances in margin accounts rose 5 per cent in the past six months lending by brokers to their customers has soared, up 53 per cent, as investors continued to pour money into stocks up to the first quarter of this year.
The sharp rise in borrowing has raised worries that two weeks of steady decline on the Nasdaq stock market may force investors to unload large blocks of their stock holdings.
