US inflation data for May showed a 5% jump from last year – the highest since the summer of 2008 and worse than the 4.2% figure in April. At the same time, some economists believe that after the end of the current “spike” time period, inflation will remain at a higher level than it was before the pandemic.
A government report on Thursday showed US inflation rose 5% in May from last year, the largest jump in nearly 13 years.
Excluding food and energy, the core CPI rose 3.8% year over year, the highest since 1992.
However, financial markets, in contrast to the sharp fall on inflation data of 4.2% in April, reacted with restraint to the May report, although it turned out to be worse than economists’ expectations.
Ahead of trading on Friday (as of this writing), the S&P 500 is down 0.01%, the Dow Jones down 0.02%, and the Nasdaq 100 is up 0.04%.
It looks like Wall Street is more confident that the inflation jump is temporary and is due in large part to the contrasting comparison with last year, when the US economy was mostly “stalled” due to the coronavirus pandemic.
Federal Reserve officials have also convinced financial markets of their commitment to soft policies and zero interest rates until 2023.
Most of the rise in US consumer prices in May came from used cars and airline tickets, while basic things like home prices and health care rose very slowly.
A third of the rise in inflation is a 7.3% rise in prices for used cars and trucks, the housing index rose 0.3% in May and 2.2% over the past 12 months.
Medical prices fell 0.1% after rising in the previous four months, with an annual growth of just 0.9%.
The chart below, published by CNBC, shows the dynamics of changes in the core consumer price index in the United States since 1990, including all its components.
Mark Zandi, chief economist at Moody’s Analytics, believes that inflation indicators should gradually “bounce back”, however, “it is too early to conclude that this is all temporary and to what level core inflation will eventually fall when we let’s go through the normalization of prices. “
Zandi expects inflation to be higher than it was before the pandemic once the spike ends.
The expert pointed out that the reason for Wall Street’s optimistic reaction to inflation in May is the low growth in prices for medical care and housing. The expansion of the Affordable Care Act in the United States helped reduce medical costs for Americans.
Diane Swank, chief economist at Grant Thornton, believes that the spike in US inflation in the coming months may be higher than the Fed expects, but it will still be temporary.
Fed officials recently said that at upcoming meetings June 15-16, central bank officials will begin discussing a cut in the asset purchase program, with the actual cut not starting until late summer or early fall.