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Consumer prices rose 0.6% in May, above the consensus estimate, the U.S. Labor Department announced Friday, as surging energy prices continued to fuel inflation. Economists surveyed by Bloomberg News had expected May consumer prices to increase 0.5%. Consumer prices increased 0.2% in April 2008.
Also, the core rate, which excludes the volatile food and energy component, rose just 0.2%, in-line with the 0.2% Bloomberg News survey consensus estimate. Core consumer prices increased 0.1% in April 2008.
On a year-over-year basis, consumer prices have risen 4.2% and the core rate has risen 2.3%. The core rate remains slightly above U.S. Federal Reserve's 'comfort zone' for inflation. The Fed uses the core CPI rate as one of its primary gauges of consumer-based inflation.
Also, consumer prices have risen at a 4.9% rate in the last three months -- another sign of oil-fed inflation working its way into the U.S pricing system. Inflation is now a primary concern for the U.S. Federal Reserve, overtaking fears of further economic slowing.
In May, energy prices surged 4.4%, gasoline prices rocketed 5.7% higher, food prices rose 0.3%, beef increased 1.5%, recreation costs increased 0.1%, communications prices gained 0.4%, apparel prices fell 0.3%, and drugs declined 0.7%.
Inflation picture worsens
Economist David H. Wang told BloggingStocks Friday the May CPI report indicates there are no more pleasant surprises regarding the relationship between the record rise in oil prices and consumer prices.
"It looks like higher oil costs are fully working their way through the U.S. pricing system. This was a very hot number, too high, and the Fed will certainly take note of it," Wang said. "The only bright spot in this report was the relatively modest 2.3% gain in core prices, year-over-year, but otherwise we see a large increase in inflation."
Further, Wang was careful to categorize this type of inflation. "What we are seeing here is a classic case of commodity price inflation, with some impact from the weak dollar," Wang said. "This is not a case of wage-price spiral inflation because wages are not increasing, due to the slow economy, stagnant job growth, and other factors. High oil prices are the inflation driver here."
Recent wage statistics underscore Wang's point. In May, real wages declined 0.4%, the Labor Department said, with real wages down 1.2% in the past year.
Wang added that the May 0.6% inflation increase "all but guarantees a Fed interest rate increase" at its next meeting.
"Ideally, you would like to see the economy show more signs of a recovery, but Fed Chairman Bernanke will have no choice now, given these inflation numbers," Wang said. "Inflation is now too high in the United States."
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Reader Comments (Page 1 of 1)
6-13-2008 @ 9:53AM
Speculator said...
Oil is one big reason the CPI is up. It is feeding though to everything we buy--from clothes to gas. It could go higher. The oil market is like Nasdaq in 1998, I will tell you why at
www.theinvestingspeculator.com