Stock markets slide on fears of rising inflation

Stock markets across the world have slid amid worries that inflation is set to rise.

Major US indexes fell 1% on Tuesday, while European bourses saw steep declines on fears among traders that rising consumer prices could push up interest rates.

The UK’s benchmark share index, the FTSE 100, fell more than 2%.

The index has now retreated below the 7,000 mark to 6,966 after hitting a post-pandemic high of 7,164 on Monday.

“The market just can’t shake the inflation fears which are clouding the recovery from Covid,” said AJ Bell investment director Russ Mould.

“Surging commodity prices are acting as a canary in the coal mine for inflation – with the huge infrastructure and stimulus packages in the US a key contributing factor.”

Stimulus effect

In March, US President Joe Biden signed a $1.9tn (£1.4tn) economic relief bill that saw the government send $1,400 cheques to most Americans, and last month he set out plans for more government spending on jobs, education and social care.

It has led to a build-up of savings which is now being spent as the economy reopens, driving prices higher.

Inflation hit 2.6% in the 12 months to March, breaching the Federal Reserve’s target of 2% and raising fears it might raise rates to cool things down.

There are similar concerns in other economies, although central banks have so far played down the risks.

After falling more than 2% on Monday, the tech-heavy US Nasdaq share index fell a further 1% on Tuesday as markets opened and the sell-off continued in Asia and Europe.

Both France’s Cac 40 index and Germany’s Dax index were down nearly 2%.

Ben Yearsley, investment director at Shore Financial, said inflation was always likely to pick-up over the next few months given that in the same period a year ago economies were closed and oil prices slumped.

He said investors should only get concerned if higher inflation continues. “If inflation persists and we are still talking about it in six months, for example, then that is a different scenario and will maybe lead to higher interest rates.”

On the London Stock Exchange, British Airways owner IAG was one of the biggest fallers, with its shares falling 6%on the back of negative investor reaction to the government’s green list of safe countries to travel to.

Shares in NatWest Group were down more than 2%. The government announced on Tuesday morning it had sold another chunk of shares in the bank, reducing its stake from 59.8% to 54.8% and raising £1.1bn for taxpayers. (BBC)