Under normal circumstances, the recent spate of high inflation numbers would be cause for high alarm.
But in the present Covid-era context, they were confirmation in some quarters that the inflation picture is doing little more than following the script, rising due to one-off bottlenecks and the product of a distorted comparison to a year-ago period that saw much of the U.S. economy in shutdown mode.
May saw another significant jump, according to the gauge that Fed officials like to cite most.
The personal consumption expenditures core index – excluding food and energy costs – rose 3.4% on a year-over-basis, in line with Wall Street expectations but also the fastest increase since April 1992.
Markets took little notice of the Friday PCE reading, pushing stocks mostly higher and government bond yields up only slightly.
That was largely because that even while the inflation data has spurred comparisons to the runaway scenario associated with the 1970s, the numbers at least for now are on the side of those expecting the trend to subside and then stabilize at lower levels.
“It was right down the strike zone,” Mark Zandi, chief economist at Moody’s Analytics, said of Friday’s Commerce Department release. The PCE level is “consistent with the idea that the surge in inflation will be transitory, that it’s related to the reopening of the economy and some of disruptions that are resulting from that quick reopening.”
In the near term, at least, that notion that inflation is going to fade at some point is of cold comfort to those who’ve gotten socked with higher costs.
Everything from airline tickets to hotel stays to the cost of buying a home has been on the rise and showing only occasional signs of letting up. A separate inflation indicator, the consumer price index, moved up 5% in May from a year ago, while the producer price index surged 6.6%, the fastest rise on record.
Widespread price increases
Consumers are paying higher costs for just about everything.
Gasoline nationally is up 20% from pre-pandemic levels and 46% from a year ago, according to the Energy Information Administration. At the grocery store, beef and pork prices are swelling, with bacon up 18.7% from a year ago, while ham is nearly 8% higher and milk prices have climbed about 9%, according to the Bureau of Labor Statistics.
Those pressures have caught the eye of Fed officials, who are watching inflation closely to determine whether and when they should exit the ultra-easy monetary policy steps they have taken during the pandemic.
