U.S. consumer prices are rising at the fastest rate since 2008

As inflation pressures continue to rise in the world’s largest economy, consumer prices in the United States in May rose by the largest amount in the past 13 years compared with a year ago.

The increase in the US Bureau of Labor Statistics’ Consumer Price Index (CPI) exceeded economists’ predictions, sparking a heated debate about the extent to which the US economy is at risk of overheating due to supply constraints and surges in demand.

Compared with May 2020, the CPI rose by 5% last month-compared with the 4.2% annual growth rate in April, and the fastest growth rate since reaching 5.4% in August 2008 .

The core CPI-the basic inflation indicator that excludes volatile items such as food and energy-rose by 3% in April and rose by 3.8% year-on-year in May, the highest level since 1992.

The data comes as the Fed is preparing to start a debate on slowing down asset purchases to support economic recovery, even though most central bank officials have judged that the inflation spike will be temporary.

Senior officials in the Biden administration are trying to persuade Congress to pass more than $4 trillion in additional spending over the next ten years. They believe that as the economy recovers, inflation is expected to be higher next year, but not out of control.

Part of the reason for the price spike is the statistical impact of comparing this year’s gains with the low inflation levels at the beginning of the coronavirus pandemic. In addition, Thursday’s report showed that prices have generally risen due to rising costs for flights, household goods and operations, new cars, rental cars and clothing.

The second-hand car and truck index rose 7.3% in May, accounting for about one-third of the increase in CPI. Used car prices In the case of semiconductor shortages affecting automobile production, stock prices have soared.

Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, said: “We believe that as the strong base effect fades in the coming months, this will be the peak of the annual inflation rate.”

However, she warned that price increases associated with reopening and supply chain bottlenecks will keep inflation “high and sticky as the imbalance between supply and demand is gradually resolved.”

After rising by 0.8% in April, consumer prices rose by 0.6% on a monthly basis. Core CPI rose 0.7% month-on-month.

The Fed’s policymakers are more tolerant of inflation, partly because, despite loose monetary policy, consumer prices have been sluggish for a long time.

minute The results of the central bank’s April monetary policy meeting showed that officials remained relatively optimistic about inflation, but were prepared to discuss the first step in reducing the substantial monetary support provided to the economy during the pandemic. In particular, they expect to figure out how and when they will start reducing the $120 billion monthly debt purchase plan that started last year.

Krishna Guha and Peter Williams of Evercore ISI wrote in a report on Thursday: “We believe that policymakers believe that the early start of the curtailment discussion is part of protecting inflation expectations from the unexpected accumulation of upside that may occur in the coming months. This way.”

Some economists and many Republican lawmakers believe that the Fed has underestimated the risk of rising inflation.

Credit Suisse Chief Economist James Sweeney said: “Worries about inflation are a bit like phantom limb pain because they actually cut off the problem, but it’s still painful, and it’s painful, because even if the limb disappears, the fear is Will be remembered.”

Former U.S. Treasury Secretary Larry Summers, who is critical of U.S. fiscal and monetary policy, sounded the alarm after the data released on Thursday.

Summers said: “If the U.S. overheats and eventually the Fed or the market drives interest rates to soar, then the already fragile and over-leveraged global economy will face huge risks.”

The market’s response to the data has been muted. After the data was released, the US 10-year Treasury bond yield initially climbed, but as of midday fell by 0.018 percentage points to 1.470%. The US stock market rose, with the S&P 500 and Nasdaq rising 0.5% and 0.67%, respectively.

The 10-year Treasury bond yield has returned to the level of early March, “indicating that the bond market is falling, which is consistent with the Fed’s view that inflation is temporary and does not guarantee that monetary stimulus measures will be reduced in the short term,” senior executive Anu · Anu Gaggar represents the global investment analyst of Commonwealth Financial Network.

Additional reporting by Naomi Rovnick and Joe Rennison in London

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