Inflation picked up a new finger among U.S. consumers in May, with the consumer price index rising 5 percent over the past year, the largest annual rise in the benchmark since 2008.
Monthly, consumer prices rose by 0.6 percent from April, The figures from the Department of Labor showed: a slight decrease of 0.8 percent the previous month, which was the largest gain since June 2009.
The sharp jump in the year-on-year inflation rate is partly due to the base effect, which is the idea that the closure of the pandemic in the spring and the strong economy drove inflation to an abnormal low. The base effect is expected to decline in June.
While economists polled by Reuters predicted that the annual consumer price index would rise by 4.7 percent and the monthly reading in May at 0.4 percent, markets generally picked up inflation higher than expected. US equities opened higher, and although the interest rate on the standard ten-year treasury note and the gold spot price initially rose, both fell sharply and remained largely the same during the reporting period.
The subdued market response is likely to be fueled by repeated statements by Fed officials that they believe the price increase is preliminary and that they are prepared to tolerate higher inflation rates for some time around the years in which it falls below the average target of 2 percent was, to be set off.
The Fed’s preferred inflation meter, the so-called core personal consumption expenditure (PCE), which excludes volatile food and energy components, rose 3.1 percent in April, the largest jump since 1992. The PCE inflation figure for May was scheduled for June . 25.
“We have not yet seen the peak in inflation, but it should occur in the current quarter, although existing pressures should keep the year-on-year rate increasing for the rest of 2021,” said Sam Bullard, a senior economist. of Wells Fargo, said. .
“We expect inflation to be more observable in the latter half of 2022, but with inflation expectations continuing, expected PCE inflation is expected to remain above 2.0 percent,” Bullard added.
While inflationary pressures are putting pressure on consumers, some economists fear it could force the Fed to raise rates aggressively and dampen economic recovery if inflation proves to be more persistent.
Others worry that if prices accelerate too fast and stay high for too long, expectations of further price increases will rise, which will increase demand for wages and possibly cause the kind of wage price spiral that deceived the economy in the 1970s.
“The market is starting to worry that the Fed could soften inflation, and that could let the inflation genius out of the bottle,” said Sung Won Sohn, a professor of economics and finance at Loyola Marymount University in Los Angeles. .
Reuters and The Associated Press contributed to this report.