Asian stocks slump at open, tracking US losses after inflation report

Asian markets opened lower on Wednesday, tracking losses in the United States and Europe after traders responded negatively to higher-than-expected US inflation data, raising fears of a prolonged period of interest rate hikes.

Tokyo, Hong Kong, Shanghai, Seoul, Taipei and Sydney all opened lower at the start of trading, reversing gains made in recent days due to positive market expectations from the US labour department's consumer price index (CPI) report.

On Tuesday, US government data showed that the annual increase in CPI had slowed slightly in August to 8.3 per cent, but that prices continued to rise month on month, increasing by 0.1 per cent.

The news shook equity markets, where there had been widespread expectations of US year-on-year inflation being around eight per cent, with a decrease in prices compared with July.

The US and other economies have been battling sky-high price increases for months, with US yearly inflation hitting a 40-year high of 9.1 per cent in June.

Wall Street shares plunged following the news, with the Dow losing nearly 1,300 points and the S&P 500 falling 4.3 per cent.

The news will have dashed hopes of a slowdown in the US Federal Reserve's campaign of increasing interest rates to cool the overheating economy.

The Fed has already instituted two consecutive 75-basis-point hikes, and there are widespread expectations it will make a similarly sized increase at its meeting next week.

After Tuesday's data, however, some investors are now predicting the next Fed hike could be by a full percentage point.

Of concern to the Fed will be the fact that "core" US CPI, which excludes volatile food and energy prices, accelerated sharply, rising 6.3 per cent on a year ago, higher than the 5.9 per cent seen in July and June.

Despite the welcome relief from falling gasoline prices, food, housing and medical care costs continued to rise.

"Core inflation was scorching hot, coming in double expectations," said senior market analyst Edward Moya at OANDA.

"The Fed will likely have to be even more aggressive with raising rates and that is bad news for risky assets."

Noted investor Louis Navellier warned that persistently high interest rates to control inflation could lead to a US recession.

This has been caused to a large extent by supply constraints after economies reopened from coronavirus pandemic lockdowns, and in the wake of Russia's attack of Ukraine.