Inflation Sped Up Again in May, Dashing Hopes for Relief
United States: Inflation sped up again in May, dashing hopes for relief
Consumer prices in the United States rose 8.6% from a year ago and 1% from April — a monthly increase that was more rapid than economists had predicted and about triple the previous pace
Inflation, which many economists had expected to slow, instead reaccelerated to rise at its fastest pace since late 1981, a blow to US President Joe Biden and underscored the immense challenge facing the Federal Reserve in May.
From a year ago, consumer prices rose 8.6 percent and 1% from April, a monthly increase that was more rapid than predicted by economists and about triple the previous pace. After removing volatile food and fuel prices, the rate of growth was still 0.6 percent, which was the same as April's reading.
Friday's consumer price index report gave Fed officials more to worry about than to cheer about, as they are keeping an eye out for signs that inflation is slowing down on a monthly basis. Inflation is affecting a wide range of consumer goods and services, including rent, gas, used cars, and food; this suggests it will persist and be painful for consumers. A different but related index, which is also elevated, is used by policymakers to aim for inflation of 2% over time.
Since the Fed is already raising borrowing costs in order to cool the economy, the rapid rate of inflation increases the likelihood that the Fed will have to move even more aggressively and inflict pain in order to temper consumer and business demand. The Federal Reserve is widely expected to raise interest rates by a half-percentage point next week and again in July. Some economists, however, believe that the Federal Reserve will raise interest rates again in September, based on Friday's data. The risk of a significant economic slowdown or even a recession would rise if the Federal Reserve became more active.
Concerned about Fed policy and a possible downturn following the report's release, markets fell. The S&P 500 was down 2.9 percent. The yield on the two-year Treasury note hit 3.06 percent, its highest level since 2008. Short-term government bond yields serve as benchmarks for borrowing costs.
Inflation and the Federal Reserve's efforts to rein it in have contributed to an overall sour economic mood
A new low in consumer confidence was reported in a report released on Friday, after it had been declining since last year as households bear the burden of rising prices. Additionally, Biden's popularity has dipped, and Wall Street economists and small-business owners alike are growing increasingly concerned about the possibility of a recession in the coming year.
As the November midterm elections approach, Biden's gloomy attitude and the fact that inflation isn't showing any signs of abating are bad news for Democrats. Voters' concerns about rising prices have prompted administration officials to state emphatically that helping to bring inflation back to a more manageable level is a top priority, but the primary responsibility for this rests with the Fed.
The process of lowering inflation may be a long and arduous one, according to economists. The pandemic-related production and shipping bottlenecks have begun to ease, but they are still significant, resulting in a shortage of vehicles such as cars and trucks. Food and fuel prices are rising as a result of the conflict in Ukraine, and the conflict's future is uncertain. Savings amassed during the pandemic and rising wages are helping to keep consumer demand strong, albeit not enough to fully offset inflation.
Comments
Post a Comment