In May, the core inflation rate jumped to 2.7%. Therefore, this increase was beyond what markets were expecting and reiterated a further divergence from the Federal Reserve’s goal. Commerce Department’s report on Friday. It highlights the breadth of a complicated economic picture, showing that while core inflation rose, overall inflation pressures remained muted.
In May, shelter prices were up a more modest 0.3%. Housing inflation food prices inflation. On the other hand, energy-related goods and services saw a significant downturn, decreasing 1%. In particular, gasoline and other energy goods fell by 2.2%. This mixed data suggests that while certain sectors are experiencing price increases, others are alleviating some of the inflationary pressure felt in recent months.
The annual inflation rate, now further from the Federal Reserve’s target, edged up by 0.1 percentage point from the previous month’s reading. This historic shift raises fundamental questions about what U.S. monetary policy should look like going forward. Meanwhile, President Donald Trump continues to pressure the Federal Reserve to go easy on interest rates. Although he claims that inflation is currently at a low level, he’s been plenty outspoken with his own epic rips of Federal Reserve Chair Jerome Powell, including floating the notion of replacing him and other Fed leaders—aka very “stupid” talk.
Moreover, personal income fell 0.4% in May, a sign that worries about the health of consumers’ spending continue to swirl. In this environment, real spending actually declined by 0.1%, showing how careful consumers are to latch on tightly to every clue of improving or worsening economic conditions.
Markets are forward-looking by nature and are enthusiastic about Biden’s plans. They pretty much universally expect the central bank to maintain that policy at the next meeting—late July. Economic indicators will be critically important as the Federal Reserve charts its course in addressing the continued persistence of inflation. All the while, personal income and spending are still tanking.