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Inflation Running Hot From Food and Energy
Headline Inflation Jumps, Core Inflation Cools
Headline inflation in May rose 8.6% from a year ago, accelerating from April’s 8.3% to the highest year-over-year growth rate. As mentioned in our recent communication,
The Feds Response To A Tight Labor Market
, Consumer Price Index (CPI) data was released on Friday, June 10
and it rose to the highest year-over-year increase since December 1981.
The spike in consumer prices were fairly broad-based however prices were most noticeable in gas and groceries. “Higher food costs will especially hit lower income consumers with another 1.4% increase in food prices from just one month ago,” warned LPL Chief Economist Jeffrey Roach. Dairy prices rose 2.9% month-over-month, the largest monthly increase since July 2007. A moderation in food prices will not likely come to fruition until geopolitical risks subside and sanctions expire.
Some good news was the core rate (excluding food and energy) fell to 6.0% from 6.2%, a four month low.
Airline tickets jumped another 12.6% after gaining 18.6% last month, as airlines deal with pilot shortages and high fuel costs. As consumers pivot to more services spending, travel-related consumer prices will likely take a longer time to moderate relative to goods prices.
Policy Makers Inclined To Hike Rates
The Fed is widely expected to raise rates by 50 basis points next week and will likely raise rates another 50 basis points in July based on the recent CPI data. Futures markets are now pricing in a 50 basis point hike in September as well.
Investors and policymakers know inflation will likely stay above target for a while. The Federal Reserve’s preferred inflation gauge is the Core Personal Consumption Expenditure (PCE) deflator and we could likely see a more definitive decline in the deflator when released later this month. The Fed prefers the deflator metric because the CPI does not account for product substitutions consumers make when prices change, whereas, the PCE deflator tracks price changes of actual consumer purchases.
If you have specific questions related to your own investments or financial planning needs, we welcome you to
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This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
All index data from FactSet and MarketWatch.
This Research material was prepared by LPL Financial, LLC.