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U.S. consumer prices have been climbing at the fastest pace since 2008

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U.S. consumer prices have risen the most in nearly 13 years in May compared to a year ago, as inflationary pressures have continued to grow in the world’s largest economy.

The jump in the Bureau of Labor Statistics ’Consumer Price Index (CPI) exceeded economists’ forecasts, fueling an intense debate over the extent to which the U.S. economy is in danger of overheating due to of a mixture of increasing supply and demand restrictions.

The CPI was 5 percent higher last month compared to May 2020 – an acceleration compared to April’s 4.2 percent annual growth rate, and its fastest pace since 5.4 percent in August 2008.

Core IPC – the underlying measure of inflation that eliminates volatile items such as food and energy – rose 3.8 percent in May on an annual basis, the most since 1992, after an increase of 3 percent. percent in April.

The data were released as the Federal Reserve prepares to open a debate on the slowdown in purchases of assets put in place to support the economic recovery, even though the judgment of most central bank officials is that the source of inflation will be transitory.

Top officials from the Biden administration, which is trying to convince Congress to spend more than $ 4tn on additional spending over the next decade, believe higher inflation is expected for next year as the economy recovers , but will not breathe out of control.

The rise in prices is partly due to the statistical impact of comparing this year’s increases to low levels of inflation at the start of the coronavirus pandemic. In addition to that, Thursday’s report showed broad price increases – driven by rising costs of flights, home furnishings and operations, new cars, rental cars and clothing.

The index for used cars and trucks rose 7.3 percent in May, accounting for about a third of the CPI increase. Prices of used cars they jumped in the midst of a shortage of semiconductors that affected car production.

“We believe this will be the peak of the annual inflation rate as strong base effects decline in the coming months,” said Kathy Bostjancic, chief American economist at Oxford Economics.

However, he warned that the price increase linked to the reopening and bottlenecks of the supply chain keeps inflation “high and appalling as supply / demand imbalances are only gradually resolved”.

On a monthly basis, consumer prices rose 0.6 percent, after a 0.8 percent increase in April. Core CPI increased 0.7 percent month-on-month.

Federal Reserve policymakers have been more tolerant of inflation in part because consumer prices have been subdued for so long despite a weak monetary policy.

Minutes of the central bank’s April monetary policy meeting showed that officials have maintained a relatively bloody approach to inflation, but are willing to discuss the first steps towards reducing the massive amount of monetary support for inflation. economy introduced during the pandemic. In particular, it is expected to address how and when it could begin to reduce the $ 120 billion in monthly debt purchases that began last year.

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“We think policymakers see starting to slow down discussions sooner or later as a way to safeguard inflation expectations against a possible build-up of surprises in the coming months,” wrote Krishna Guha and Peter. Williams of Evercore ISI on a note Thursday.

Some economists and some Republican lawmakers argue that the Fed has underestimated the risk of higher inflation.

“Inflation fears are a bit like phantom limb pain in that they actually cut the problem but it still hurts, and it hurts because the fear is remembered even if the limb is gone,” James said. Sweeney, chief economist at Credit Suisse.

Larry Summers, a former U.S. Treasury secretary who has developed as a vocal critic of U.S. fiscal and monetary policies, raised the alarm after the data was released Thursday.

“If overheating occurs in the United States and there is a possible spike in interest rates driven by both the Fed and the markets, there will be enormous risks to an already fragile and over-exploited global economy,” Summers said. .

A White House official said Thursday that as long as inflation expectations remain “well-anchored and well-behaved,” inflation will have a tendency to decline as well.

But the Biden administration is stepping up its efforts to eliminate some of the bottlenecks in the supply chain that were raising prices in sectors ranging from home and semiconductors to transportation, the official said.

“We will be engaged with the full range of stakeholders guided by the relevant secretaries of the cabinet and we will work to identify the potential levers we can pull to alleviate these constraints… We know we are going to explore all avenues,” the official said. .

The market reaction to the data was subdued. The U.S. 10-year Treasury yield initially climbed after the data, but at noon it dropped 0.018 percentage points to 1,470 percent. US stocks were positive, with the S&P 500 and Nasdaq growing 0.5 and 0.67 percent respectively.

Anu Gaggar, senior global investment analyst for the Commonwealth Financial Network.

Additional reports from Naomi Rovnick and Joe Rennison in London


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