May Consumer Prices Post Largest Jump in a Decade, Raising Inflationary Concerns

In its release of the May Consumer Price Index (CPI), the Bureau of Labor Statistics (BLS) reported an increase of 0.6% on a seasonally adjusted basis, on the heels of an 0.8% increase in April. The numbers represent the largest increase in over a decade, fueling investor concerns about whether rising inflation is temporary, or the sign of a new feature in the post-pandemic economy.

Key Takeaways

• The BLS report shows CPI advanced 0.6% on a seasonally adjusted basis between April and May, the greatest rise in over a decade. 
• The magnitude of gains may be distorted by pandemic era lows.
• Increases in more than half of CPI categories were tied to economic reopening.

CPI Sees Decade Highs

Over the last 12 months, the All Items Index climbed 5% before seasonal adjustment, marking the largest 12-month increase since August 2008. Core CPI, excluding food and energy costs which typically contain the index’s most volatile items, rose by 3.8% over the past year, the highest increase since 1992. It’s worth noting however, that recent gains in large part reflect post-pandemic recovery bias, as the economy emerges from pandemic lows. 

Gains Driven By Reopening

As the economy reopens, strong consumption pushed more than half of CPI categories, including vehicles, household items, air travel and apparel. Secondhand car sales in particular accounted for roughly a third of total monthly advances in the CPI, according to the Labor Department. 

The View From The Biden Administration

Outwardly, the Federal Reserve appears to see the increase as temporary. At the Group of Seven (G-7) meeting in London on June 5, Treasury Secretary Janet Yellen stated she believed inflation would remain at an elevated rate of 3% until the end of the year and characterized the movement as transitory. “I don’t believe it’s permanent,” she said. However, remarks like these haven’t quelled speculation or concerns that flows might slow if the Fed were to respond by raising interest rates or if consumption wanes.

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