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US Consumer Prices Rise By Most Since 2008

by Karl Schamotta | June 10, 2021

US consumer prices jumped sharply in May, suggesting that inflation pressures could be sustained for longer than previously anticipated. 

What happened: The Bureau of Labor Statistics’ Consumer Price Index rose 5 per cent from the same month a year ago, up 0.6 per cent on a month-over-month basis. Core prices – with fuel and food costs excluded – increased 3.8 per cent year-over-year, up 0.7 per cent from April. Median forecasts in surveys from Bloomberg and Reuters were set closer to 0.5 per cent for both headline and core measures.

This amounted to the fastest price growth in 13 years: The index surged 5.4 per cent in August 2008.

Gains were widespread: Prices for used cars and trucks contributed almost a third of the overall increase, but significant upturns were also in evidence across the goods, services, and shelter categories. With base effects removed, core inflation rose slightly more than 2 per cent on an annualised basis.

But no minds were changed: Although reaction might gain momentum over the North American trading cycle, yields were only slightly higher and major currency pairs remained strictly range bound as we went to pixels. The trade-weighted dollar was down 0.1 per cent on the day.

This raises two possibilities: The first is that investors agree with mainstream economists and central bankers – they are convinced that today’s rise in prices will be short-lived, with developed economies returning to a “lowflation” regime in the months ahead. Or, markets now believe that the Federal Reserve will continue to suppress rates until its employment objectives have been met – come hell or high inflation.

Separately, the number of American applying for unemployment benefits fell for a sixth week: Data released this morning show initial jobless claims dropping by 9,000 to 376,000 in the week ended June 5. In the week prior, 3.5 million people were getting aid.

Coronavirus rescue money is still flowing: According to two-week-old data, more than 15.4 million were receiving payments under all regular and pandemic-specific unemployment programs – down by roughly half from the same time a year ago. 25 states are set to withdraw from federal unemployment programs between this weekend and the middle of July – suggesting that incomes, price pressures, and unemployment levels could all experience significant distortions over the coming month.

Earlier, the European Central Bank announcement was lacking in entertainment value: The Bank released a statement that was a virtual word-for-word duplicate of its April decision, with no changes made to benchmark rates, asset purchases, or forward guidance. Confirmation that the Governing Council continues to resist calls from some policymakers (read: Germans) to start removing monetary accommodation left the euro essentially unmoved.

Karl Schamotta
Chief Market Strategist

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