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Transitory or Not, Signs of Inflation Are Roiling Asset Markets

  • Long-term inflation risk remains top of mind for investors
  • Commodities, chips fuel rise in expectations for higher prices
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Over and over again, Federal Reserve officials have advised that any pickup in inflation this year was bound to be transitory. Traders in financial markets, however, aren’t so sure.

Even before the faster-than-forecast rise in U.S. consumer prices reported Wednesday, investors had become fixated on widespread signs of cost pressures as commodities like copper and lumber surged to records and the bond market’s expectation for inflation over the next decade climbed to an eight-year high. The focus is shaking up the stock market, sending the Cboe Volatility Index to the highest since March.

The most-recent round of U.S. corporate earnings calls showed the word inflation was back in vogue, with its usage rising 800% from a year ago, according to Bank of America Corp. Even last week’s payrolls report, which showed the U.S. added only about a quarter of the jobs economists expected in April, is being viewed as a sign that companies will have to boost wages to entice more unemployed workers into the labor force.