Teh One Who Knocks
06-17-2014, 02:41 PM
By Jeffry Bartash, MarketWatch
http://i.imgur.com/5Uq70b3.jpg
WASHINGTON (MarketWatch) — U.S. consumer prices rose sharply in May for the second straight month and the rate of inflation over the past year reached its highest level since late 2012, an upward trend that could worry the Federal Reserve unless it abates soon.
The consumer price index jumped a seasonally adjusted 0.4% last month following a 0.3% gain in April, the Labor Department said Tuesday.
In the past 12 months, consumer inflation has climbed by an unadjusted 2.1%. Just eight months ago, inflation was running at just a 1% pace.
The Federal Reserve has been aiming to boost inflation to around 2% or so from what it considered an economically damaging low level, but the sudden surge could set off alarm bells. The central bank might be forced to raise U.S. interest rates earlier than it planned unless the pace of inflation levels off.
Top central bankers meet this week to plot their next move and Chairwoman Janet Yellen will hold a press conference on Wednesday.
In May, energy prices rose 0.9%, led by higher costs of electricity and gasoline. Yet the increase in electricity stemmed mostly from a California law that adjusts monthly consumer bills once a year, the effects of which should fade in June. Gasoline prices, for their part, have remained fairly steady and natural-gas prices dropped for the first time in four months.
A more worrisome development is rising food prices. They jumped 0.5% in May — the largest advance in almost three years — with most major categories showing an increase. Food costs have risen 2.5% in the past 12 months, the fastest increase in nearly two years.
Unusually low stock of cattle and severe drought has put pressure on prices of meat, vegetables and some grains and the effects could linger for a while.
The core CPI, which exclude volatile food and energy costs, rose by 0.3%, the biggest gain since August 2011. The cost of housing, new cars, airline tickets, medical care and prescription drugs all increased.
The uptick in inflation is also a scourge for American workers. Real or inflation-adjusted hourly wages fell 0.2% in May as the rising cost of consumer goods outraced the modest gains in worker paychecks.
Real wages have actually fallen 0.1% in the past 12 months, suggesting that Americans have little ability to increase spending and thereby boost the economy — unless they save less or take on more debt.
The meager annual increases in worker paychecks, however, will probably limit how much higher inflation will go. Rising wages are typically the biggest cause of higher inflation, but there’s little sign that companies are feeling any pressure to give bigger raises in a still-slack U.S. labor market.
“The data suggests inflation may begin to trend modestly higher, but excessive inflation appears unlikely in the absence of stronger growth, further tightening in labor market conditions, and greater pressure on wages,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors.
http://i.imgur.com/5Uq70b3.jpg
WASHINGTON (MarketWatch) — U.S. consumer prices rose sharply in May for the second straight month and the rate of inflation over the past year reached its highest level since late 2012, an upward trend that could worry the Federal Reserve unless it abates soon.
The consumer price index jumped a seasonally adjusted 0.4% last month following a 0.3% gain in April, the Labor Department said Tuesday.
In the past 12 months, consumer inflation has climbed by an unadjusted 2.1%. Just eight months ago, inflation was running at just a 1% pace.
The Federal Reserve has been aiming to boost inflation to around 2% or so from what it considered an economically damaging low level, but the sudden surge could set off alarm bells. The central bank might be forced to raise U.S. interest rates earlier than it planned unless the pace of inflation levels off.
Top central bankers meet this week to plot their next move and Chairwoman Janet Yellen will hold a press conference on Wednesday.
In May, energy prices rose 0.9%, led by higher costs of electricity and gasoline. Yet the increase in electricity stemmed mostly from a California law that adjusts monthly consumer bills once a year, the effects of which should fade in June. Gasoline prices, for their part, have remained fairly steady and natural-gas prices dropped for the first time in four months.
A more worrisome development is rising food prices. They jumped 0.5% in May — the largest advance in almost three years — with most major categories showing an increase. Food costs have risen 2.5% in the past 12 months, the fastest increase in nearly two years.
Unusually low stock of cattle and severe drought has put pressure on prices of meat, vegetables and some grains and the effects could linger for a while.
The core CPI, which exclude volatile food and energy costs, rose by 0.3%, the biggest gain since August 2011. The cost of housing, new cars, airline tickets, medical care and prescription drugs all increased.
The uptick in inflation is also a scourge for American workers. Real or inflation-adjusted hourly wages fell 0.2% in May as the rising cost of consumer goods outraced the modest gains in worker paychecks.
Real wages have actually fallen 0.1% in the past 12 months, suggesting that Americans have little ability to increase spending and thereby boost the economy — unless they save less or take on more debt.
The meager annual increases in worker paychecks, however, will probably limit how much higher inflation will go. Rising wages are typically the biggest cause of higher inflation, but there’s little sign that companies are feeling any pressure to give bigger raises in a still-slack U.S. labor market.
“The data suggests inflation may begin to trend modestly higher, but excessive inflation appears unlikely in the absence of stronger growth, further tightening in labor market conditions, and greater pressure on wages,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors.