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Consumer Price Index May 2022:

Inflation accelerated further in May, rising 8.6% from a year earlier for the fastest increase since December 1981, the Bureau of Labor Statistics reported Friday.

The consumer price index, a broad measure of the prices of goods and services, rose more than the Dow Jones estimate of 8.3%. Excluding volatile food and energy prices, the so-called core CPI rose 6%, slightly higher than the 5.9% estimate.

On a monthly basis, headline CPI rose by 1%, compared to the respective estimates of 0.7% and 0.5%.

Rising shelter, gasoline and food prices have contributed to the increase.

Energy prices rose 3.9% from a month earlier, bringing the annual gain to 34.6%. Within the category, fuel oil posted a 16.9% monthly gain, pushing the 12-month surge to 106.7%.

Shelter costs, which weigh about a third of the CPI, rose 0.6% for the month, the fastest one-month gain since March 2004. The 5.5% 12-month return was the highest since February 1991.

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Finally, food costs rose another 1.2% in May, bringing the year-over-year gain to 10.1%.

Rising prices meant workers took another pay cut during the month. Real wages fell 0.6% in April when adjusted for inflation, even as average hourly earnings rose 0.3%, according to a separate BLS release. On a 12-month basis, real average hourly earnings were down 3%.

Markets reacted negatively to the report, with stock futures pointing to a sharply lower open on Wall Street and rising government bond yields.

“It’s hard to look at May’s inflation numbers and not be disappointed,” said John Lear, chief economist at Morning Consult. “We’re still not seeing any signs that we’re in the clear.”

Some of the biggest increases were in airfares (up 12.6% month over month), used cars and trucks (1.8%), and dairy products (2.9%). Vehicle costs are considered a bellwether of rising inflation and have been falling for the past three months, so the increase is a potentially ominous sign, as used vehicle prices are now 16.1% higher than last year. The price of new vehicles increased by 1% in May.

Friday’s data dashed hopes that inflation may have peaked and fueled fears that the US economy is on the verge of a recession.

The inflation report comes with the Federal Reserve in the early stages of a rate-hiking campaign to slow growth and lower prices. The May report solidifies the possibility of multiple 50 basis point interest rate hikes ahead.

“Obviously, there is nothing good about this report,” said Julian Brigden, president of MI2 Partners, a global macroeconomic research firm. “There’s nothing there for the Fed to cheer about. … I struggle to see how the Fed will pull back.”

With 75 basis points of interest rate hikes already under its belt, markets widely expect the Fed to continue tightening policy throughout the year and possibly into 2023. The central bank’s benchmark short-term lending rate currently stands at 0.75%-1% and is expected to rise to 2.75%-3% by the end of the year, according to CME Group estimates.

Inflation is a political headache for the White House and President Joe Biden.

Administration officials place much of the blame for the escalation on supply chain issues related to the Covid pandemic, an imbalance caused by higher demand for goods over services, and Russia’s attack on Ukraine.

In a recent Wall Street Journal op-ed, Biden said he will push for further reforms to supply chains and continue efforts to reduce the budget deficit.

However, both he and Treasury Secretary Janet Yellen have emphasized that much of the responsibility for reducing inflation rests with the Fed. The administration has largely denied that the trillions of dollars directed to Covid aid played a major role.

How much the central bank should raise rates remains to be seen. Former Treasury Secretary Larry Summers recently released a white paper with a team of other economists that suggests the Fed needs to do more than many expect. The paper asserts that the current inflationary predicament is closer to the situation in the 1980s because of differences in the way the CPI was calculated then and now.

Correction: Julian Brigden is chairman of MI2 Partners. His name was misspelled in the previous version.

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