Global Factors First: Was There A US CPI Today?

It isn’t all base effects, or even all that much of them. Though these were higher in May 2021 than they had been in April, US consumer prices have accelerated regardless. According to the BLS and its latest CPI estimates, the net change in its headline index last month from last May was an excitable 4.99% (unadjusted). That’s the highest since August 2008.

A big part of that was gasoline where the base effect contributed most. Year-over-year, the increase in motor fuel was 56.5% due to last May being the lowest deflationary point (thus far). This is the fastest increase for this item, on average, since 2005.

Even outside of gasoline, prices are up strongly, too. Core consumer prices (seasonally-adjusted) another half a percent, itself the second highest in very long time (only less than April). The yearly increase, both adjusted and unadjusted, was an incredible 3.80%. For something similar in this otherwise less volatile price bucket, you have to go back to George Bush – the elder.

Accounting for base effects in the core measure, the index was up a stout 3.31% when compared to February 2020. Prices are hot, even red hot.

So why doesn’t it seem to matter?

In the media, obviously, this is all wildly confirming everyone’s seemingly rational warnings. Goodbye more than a decade of disinflation and price puzzles, say hello to 1978 all over again – right out of the frying pan and into the fire without having stopped even for a little while at some happy medium in between. Story after story printed of a foregone conclusion, as if there can’t possibly be anyone to disagree.

Yet, outside of this, however, inflation continues to be treated as the outlier possibility; these numbers as well as conditions are being interpreted very, very differently. In the bond market, this makes two huge CPI estimates in a row and two huge CPI estimates that seemingly went by totally unnoticed, certainly unappreciated in that way. Yields today, just like last month, dropped – quite a bit after the initial very modest morning selloff when the BLS published its figures.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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