Apparently no biggie
The consumer price index, which measures price inflation for a basket of consumer goods, increased 5% in May, ahead of expectations for a 4.7% increase. This is the sharpest increase in annual inflation we’ve seen since the summer of 2008, just before the US went into the Great Financial Crisis. Core inflation, which excludes food and energy, increased 3.8%, which is the biggest jump we’ve seen in this measure since May 1992, that was literally before I was born.
Moral of the story: Markets pretty much ignored this report as the consensus seems to be that the elevated inflation is transitory in nature and should pass in the upcoming months. The Fed is also of the same mindset, making it clear they don’t intend on raising interest rates despite inflation, in the short-term, running well above their 2% target.
Bringing back the jobs
Weekly jobless claims continue to edge lower with only 376k new claims filed last week, which represents a new pandemic-low. Continuing claims, which measures those who have been consistently filing for unemployment also fell to a pandemic low of ~3.5m. To put that into context, that same number a year ago was almost 19m.
Moral of the story: Elevated COVID-related federal unemployment benefits run out after the first week of September and many states are already rolling back state-level COVID-related unemployment benefits. As vaccinations continue and the weather improves, we should continue to see the labor market march down the path of recovery.
Improving sentiment
Consumer sentiment made a nice recovery in June as worries about inflation became overshadowed by the optimism about future economic growth and employment. The overall index increased to 86.4, up from 82.9 last month. The reading for consumer expectations rose to 83.8 from 78.8 in May while one-year inflation expectations fell 0.6% to 4.0% and long-term inflation outlook dropped 0.2% to 2.8%.
Moral of the story: We need consumer sentiment to be strong for the economy to continue growing at the rapid pace being baked into prices in the stock market today. Let’s hope this increased optimism continues to flow through into elevated consumer spending.
I’ll be taking a quick break next week for a big move but I will be back in your inboxes the following weekend!