Economic Market Pulse | June 11, 2022
The surprise increase in headline inflation to a 40-year high of 8.6% in May, from 8.3%, together with another strong rise in core prices, raises the odds that the Fed will need to extend its series of 50bp rate hikes into the fall, and even opens the door to a larger 75bp move at next week’s FOMC meeting.
Headline CPI rose by 1.0% month-over-month last month, with the energy index up 3.9%, as gasoline prices rose by 4.1% and utility gas prices surged by 8.0%.
The bigger increases in core prices a year ago mean that core inflation still edged down to 6.0%, from 6.2%, but there is very little evidence to suggest that inflationary pressures are easing. Moreover, the surge in energy prices means that headline inflation will remain close to 8.6% in June.
The big worry on Wall Street is that inflation is shifting to services from goods. That’s because rising prices in services — think rent, hotel rates and plane tickets — tend to be harder to reverse and are often a sign inflation is becoming embedded in the economy.
Until very recently, most of the inflation in the U.S. was concentrated in new and used vehicles, gasoline and other consumer goods.
In May, services inflation excluding energy jumped 0.6% and climbed 5.2% over the past year — double the increase compared to last summer.