Inflation watch: no market jitters here

·2 min read

Data: U.S. Bureau of Labor Statistics; Chart: Axios Visuals

The May reading of the Consumer Price Index, out Thursday, was a doozy. In short, overall prices jumped 0.6% during the month, and were up 5% over the last 12 months.

Why it matters: We're only three months into this go-round of rising prices, so the crucial question of whether inflation is temporary, as the Fed expects it to be, or more structural, as some fear, isn't yet answerable.

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The big picture: "Some of the supply bottlenecks and distortions are very severe right now, and these things just take a while to play out," Yung-Yu Ma, chief investment strategist at BMO Wealth Management, tells Axios.

  • But the rising prices are broad-based, hitting nearly every category in May on a year-over-year basis, notes Ma. Healthcare is the only category that declined, by 1.9%.

Reality check: As market watchers hunt for clues there are enough data points to back whatever narrative you want.

Investors are giving the Fed the benefit of the doubt — so far.

  • The S&P 500 rose to an all-time high Thursday, closing the day up 0.47%.

  • The 10-year Treasury declined 5 basis points, closing at a three-month low of 1.45%.

What to monitor:

  • The price of shelter (effectively a measure of rent) is one to watch because as a category it's generally stickier, Ma says. And the last three months' gains in the shelter category together add up to 1% — which, annualized would amount to about 3%.

  • Wage growth over the next few months, and whether businesses pass through higher costs to consumers.

  • Fiscal policy. "I am watching ongoing fiscal negotiations more closely than near-term CPI prints — fiscal policy is more important for the medium-term inflation outlook than are current prices," wrote Eric Winograd, senior economist at AllianceBernstein, in a research note.

The bottom line: The latest CPI reading is unlikely to convince the Fed to pull forward any plans for reducing its market support.

  • "Changing the stance of monetary policy won’t address supply chain disruptions," Winograd wrote.

Go deeper... By the numbers: The price of gas, beer, booze and makeup

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