Investors were taken by surprise that US inflation did not fall as expected in January, instead remaining at 2.1 per cent, driven by sharp increases in clothing and energy costs.
Analysts had expected the number to fall to 1.9 per cent, and the higher figure sent jitters through markets - though the volatile indices quickly recovered their losses.
The S&P 500 veered between losing 0.5 per cent and gaining the same amount, while the Dow Jones Industrial Average lost 0.6 per cent before recovering to enter positive territory.
Bond yields also increased on the news as investors anticipated higher interest rates, with the yield on the benchmark 10-year US Treasury jumping to a new four-year high of 2.91 per cent.
The twitchy moves follow a sharp sell-off at the start of this month which was triggered in part by strong wage growth figures that led to fears that inflation was on the rise, and so interest rates would have to go up more sharply than previously thought. As a result, the persistence of inflation will worry traders, who are on a hair trigger when it comes to official data.
Erik Norland of CME Group said: "Investors are nervous about the combination of stretched equity valuation levels and rising bond yields."
He added: "Today's numbers could encourage the Fed to hike more quickly unless the equity market sells off in a sufficiently violent manner to convince them to downshift to a slower pace of tightening."
There are further indications wage growth could accelerate too. The National Federation of Independent Business in the US surveys its members to ask about wage plans.
Its index currently shows that almost 25 per cent of firms are planning to give pay rises, close to a record high - and this usually suggests wage growth is going to pick up soon.
Torsten Slok of Deutsche Bank said: "Historically, labour costs have been predicted with a nine-month lead by companies' plans to raise worker -compensation."
"We are now beginning to reach levels at or above previous peaks," he added.