Consumer prices jumped 8.6% in May from a year ago as inflation propped up the US economy

The consumer price index, which calculates the cost of a basket of goods from month to month, jumped 1% in May compared to the 0.3% increase in April – a a sign that inflation is still burning.

Compared to a year ago, the index in May reached 8.6%, up from the 8.3% year-on-year increase seen the previous month. It is the highest reading since 1981.

And the “basic” index which excludes food and energy costs reached 0.6% last month, compared to 0.6% in April.

The latest data from the Bureau of Labor Statistics (BLS) released on Friday reflects a still-booming US economy, thanks in large part to rising gas and food prices.

Energy prices climbed 34.6% from May 2021, while food prices jumped 10.1% during this period. It’s the first increase of 10% or more in more than 40 years, the BLS said.

Airline fares jumped 37.8%, while prices for new vehicles jumped 12.6% and used vehicles 16.1%.

Gasoline prices are poised to hit a national average of $5 a gallon, an inconvenient step that stings at the worst possible time for Americans planning summer vacations and road trips.

The main driver of gasoline prices is the price of oil. Over the past three months, the price per barrel of Brent crude oil has fallen from around $87 to $122.60 as of Thursday’s market close.

When will inflation start to fall? Not anytime soon, according to senior vice president and chief financial analyst Greg McBride.

“It will take several months of more subdued price readings for the inflation rate to come down significantly,” McBride wrote in a note this week. “We may not have much less than 6% before the end of the year.”

Other experts agree that the geopolitical elements that have served to raise prices around the world are not going to subside in the short term.

“The Russia-Ukraine story is not going to change anytime soon,” James Knightley, chief international economist at financial services group ING, said in an email. “China [Covid-related] lockdowns have eased, but could easily return any day given the zero Covid strategy. Second, labor market participation is not improving fast enough.”

So it will be up to the Federal Reserve to help restore the balance between demand and supply-affecting factors, he said.

Next week, the Fed will decide to raise its key rate for the third time this year. Markets and investors are almost unanimous that the central bank will choose to raise rates another half point, from 1.25% to 1.50%.

Rather, the question is whether it will continue to raise interest rates by 0.5% at its July and September meetings.

“To the extent that the spike in energy and food prices is driven by global supply factors – primarily the war in Ukraine – one would not necessarily expect the Fed to react,” wrote Andrew Hunter, senior US economist at the Capital Economics research group. a note to customers this week. “But with inflation so far above the 2% target, those old rules no longer seem to apply.”

Hunter noted recent comments from Federal Reserve Governor Christopher Waller, who said the Fed should do whatever it takes to fight inflation given its core mandate.

“At this point, I don’t care about the reasons,” Waller said last month. “Inflation is too high and my job is to bring it down.”

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Post expires at 3:07am on Thursday June 23rd, 2022