- Consumer prices had another hot month in May, rising 0.6% month/month, after a 0.8% m/m gain in April. That was one tick above expectations and boosted the headline inflation rate to 5.0% year-on-year (y/y), up from 4.2% in April. That marks the highest pace of inflation since August 2008.
- Core prices (ex. food and energy) were also up 0.7% m/m in May, slightly above expectations, and after rising by 0.9% m/m in April. That drove year/year core inflation higher to 3.8% in May – the largest increase since 1992.
- Many of the same categories that saw accelerated price growth in April saw continued robust growth in May. Used vehicle prices continued to be a big story, rising 7.3% m/m in May. Again, price hikes there accounted for one third of the headline increase in inflation. Elsewhere, household furniture and operations (+1.3 m/m), new vehicles (+1.6% m/m), airline fares (7.0%) and apparel (1.2% m/m) all saw robust gains. A smaller category, but notable in the rate of its increase – car and truck rentals rose 12.1% m/m, and prices are up 109.8% versus a year ago.
Key Implications
- If you want to travel somewhere in the U.S. right now, it’s going to cost you. There is a theme to some of the biggest prices hikes, purchasing or renting vehicles and air travel have all seen huge upswings in recent months. Americans are increasingly vaccinated with stimulus money in their accounts to spend now that restrictions are lifted. This surge in demand is running up against supply that cannot adjust quickly enough.
- The question is: how long will these elevated price increases go on? Over time supply is expected to adjust, but with pandemic-related supply shortages and constraints still in place the process could take some time. Even as some of these swings are transitory, measures that aren’t as affected by the pandemic are also seeing sturdy price gains. Eventually the Federal Reserve may have to take notice, but the other side of the dual mandate – full employment – has been a bit disappointing lately, suggesting it will be some time still before they raise rates.
