Futures sink as strong inflation data raises rate hike fears

India's factory output grows 7.1% in December

The consensus estimate for January inflation was 0.3%, so this report could roil the stock and bond markets.

The fact that consumer prices index stayed at 3 per cent showed inflation to be sticky.

The futures were higher by about 0.5 percent ahead of the inflation data released at 8:30 a.m. ET. It hit a four-year high of 2.902 percent on Monday.

That sparked fears that inflation - and interest rates - are on the move higher, a trend shift that sparked the market turbulence that has ensued in recent weeks.

Likewise, input price inflation slowed to 4.7 percent from 5.4 percent in the previous month. Women's apparel costs jumped a record 3.4 percent, the report showed.

On a month-on-month basis, the core sub-index increased by 0.68 per cent in January 2018 was higher from 0.51 per cent recorded in December.

While ONS reported signs of weaker price rises for fuel and food in January, those were offset by a shallower fall in leisure costs.

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Including all items, the main CPI gauge rose 2.1 percent from a year earlier, the same pace as in December and exceeding forecasts for a 1.9 percent increase.

Consumer durables and consumer non-durables have recorded growth of 0.9 per cent and 16.5 per cent, respectively. The latest January PMI data would appear to show an economy that has hit a bit of a soft patch, yet for all of that, the tone of last week's inflation report would suggest that the MPC may well be more anxious about the inflation outlook than they would like to admit. Meanwhile, soft retail sales are probably the result of two factors - one, adverse weather shuttered sales at the start of the month (e.g. motor vehicles -1.3%); two, January may be a "pause to refresh" after a gangbusters 4Q. After rising strongly since the middle of 2016, food price inflation now appears to be slowing.

January's fall in US retail sales was the biggest monthly drop in nearly a year, conversely also feeding into fears that the economy is not strong enough to swallow robust increases in borrowing costs.

'This adds further weight to the case for higher interest rates sooner rather than later, ' he said. Even so, equities have recovered some ground, advancing for three trading sessions in a row through Tuesday. "I do not expect a rate hike for the next five to six months". "That's healthy. Between the economic data, the inflation data and the supply coming to market, we may get through that 3 percent area". The measure excluding food and energy is also below the Fed's target.

Reacting on the industrial production data, Sunil Kumar Sinha, Principal Economist of India Ratings & Research it was still early to read much from these numbers as these growth numbers had been calculated on a low base when industrial output had collapsed due to the impact of demonetisation.

Real average earnings fell 0.8 percent in January, although they are up 0.4 percent from the January 2017.

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