Kevin Lester, CEO of Validus:
“What we are seeing is a perfect storm of supply and demand side factors, from monetary and fiscal stimulus boosting consumer spending, to supply bottlenecks related to the pandemic which are increasing costs. If this continues, it could spook the bond market, which so far appears to be taking a rise in inflation expectations in its stride.

"In the short term, such an increase in yields could support the US dollar, which has been remarkably robust this year despite market expectations. However, in the longer term, higher inflation clearly represents a significant threat to the dollar – particularly if the Fed intervenes to protect a highly-leveraged economy by preventing yields rising.”

John Leiper, chief investment officer at Tavistock Wealth:
“Consumption is up, construction is thriving and labour markets are tightening. Ordinarily, the Fed might be planning its first-rate hike around now but apparently this won’t happen for some time. That’s because Powell is running the Fed like he’s a football manager going into extra time… but he hasn’t heard the final whistle.

"That’s what happens when your policy is tone-deaf. To be clear, I’m not accusing Powell of being tone-deaf to the needs of the people, far from it. By focusing on maximum employment over price stability, he is getting America back to work. That’s important. Further, within the employment objective Powell is increasingly focused on social policy. Whilst that is entirely admirable, and the COVID crisis offers the opportunity to do just that, it is arguable that such an endeavour goes beyond his monetary remit, particularly at a time when rampant fiscal policy seeks to do just that.

"In fact, the Fed’s whole approach to employment seems off. There are now 9.8 million unemployed people in the US but there are also 8.1 million job openings, the highest on record. Powell seems to think that the solution to this supply-demand imbalance is more quantitative easing and lower-for-longer interest rates. But these tools have contributed to growing inequality, not less, and will not cause people to take those jobs if they don’t want them. Indeed, there is growing evidence that employers are struggling to lure prospective employees back to the jobs market due to wage competition from government transfer payments, as evidenced by last week’s average hourly earnings data which jumped 0.7 per cent month-on-month. Alternative explanations for the supply-demand imbalance include skills mismatch and the additional burden placed on parents while schools remain close. These issues cannot be resolved by more-of-the-same monetary policy.

"Instead, Powell may have become tone-deaf, or blind-sighted, towards 

financial stability risk. There’s a reason why house prices are up, SPACs are a thing and crypto investors have netted quintuple percentage gains this year alone… and it all speaks to rampant asset price inflation. This inflation is now spilling over into the real economy and that’s what we’ve seen today."

Daniele Antonucci, chief economist and macro strategist at Quintet Private Bank (parent of Brown Shipley):
“Today’s upside surprise in US consumer price inflation follows several other higher-than-expected increases, from China’s producer prices to Germany’s wholesale prices. Markets appear somewhat nervous as more and more statistical releases suggest rising inflation. Our view is that inflation is rising because of transitory factors, such as supply bottlenecks.

"Central banks – including the Fed – have communicated, and quite clearly, that they are aware of such trends and consider these spikes as transitory. Our own analysis supports this view too, and suggests that what’s boosting inflation is the combination of base effects, the feed-through of commodity price increases and various input shortages.

"Conversely, we don’t see the strength in wage growth or the tightness in labour markets and in factory utilisation rates that are normally associated with protracted inflation spikes. This is why we expect inflation to peak over the next few months and to slow again in the second half of the year, eventually getting back to central banks’ targets.

"Even though the inflation pickup was expected, most forecasts didn’t foresee such a big jump. It’s fair to say that some of the key inflation indicators have tended to rise more than the consensus had envisaged recently. This is what appears to have impacted stock markets over the past 48 hours, with tech shares once again retreating on fears that higher inflation may prompt central banks to hike rates sooner than expected.

"Calibrating the magnitude of the inflation overshoot after a shock as big as the pandemic is going to be quite tough for market participants. This may raise volatility for a period of time. However, the major economies continue to recover, supported by reopening and stimulus.”

Neil Birrell, Premier Miton chief investment officer:
“More economic data; more upside surprise. This has to be getting concerning for the Fed now. This will lead yields and the dollar higher and dampen the outlook for growth stocks.”

Michel Perera, CIO at Canaccord Genuity Wealth Management:
"Both the headline and core numbers are very high and way above expectations. Although well flagged, these readings have the power to upset markets and, indeed, NASDAQ futures fell 1.5 per cent as soon as the number was announced. US 10-year treasury yields are up 2.5 bps too. Quite surprisingly, real average weekly earnings fell -1.4 per cent from +3.9 per cent the previous month, so the numbers are obviously affected by exceptional inputs.

"Markets will react – and overreact – to short-term inflation data (which happened on Friday with payrolls but didn’t last), but the Fed would have to see a longer-term pattern to start to worry at all. In fact, the current spike (up 1.6 per cent from last month for both headline and core) appears very clearly to be caused by one-off events rather than by steady increases in underlying price categories.

"Interestingly, bond yield increases are not offsetting the rise in inflation, which means real yields are falling, an indication that the bond market sees the current inflation spike as just that: a spike. The US two-year breakeven is rising by 5 bps and the 10-years by 2 bps. The US dollar bounced back 0.6 per cent amid its downward trend."

Jason Cozens, founder and CEO of gold-based fintech Glint:
"The insidious creep of inflation has suddenly become a surge. Consumers are facing the biggest inflation hike since the financial crisis at a time when interest rates are almost zero and President Biden has just signed a $1.9 trillion economic relief bill  – this combines to erode the value of our cash and savings by the day.

 "US Treasury Secretary Janet Yellen recently claimed there wasn't "an inflationary problem" – these latest figures don't support that statement. Consumers are facing higher everyday prices at the precise moment their money is rapidly declining in value. It seems like we have a very real problem. This is an issue that consumers and savers have been faced with for far too long and the current financial system is either unable or unwilling to adapt to solve this cash crisis."

"The US Fed faces a real dilemma – although inflation looks like it's soaring far beyond the 2 per cent level the Fed originally targeted, the Fed will be reluctant to raise interest rates for fear of choking off the nascent economic recovery. Squaring this circle will be a challenge throughout 2021. It's no wonder that consumers are increasingly turning away from fiat currencies in a search for value and to protect their purchasing power."