US economy

May 2021 Consumer Price Index Expected to Show Fastest Inflation Since 2008


Prices are rising for everything from airfares to used cars, and fresh data due on Thursday will give policymakers and investors another chance to assess whether those increases are likely to be short-lived — or are poised to be the kind of lasting inflation that officials would worry about.

Economists expect the Labor Department to report that the Consumer Price Index rose 4.7 percent in May compared with a year prior, a Bloomberg survey of economists shows. That’d be the largest annual increase since 2008. Economists project that the price index rose 0.5 percent between April and May.

As prices have climbed in recent months, government officials and many economists have said the jump is likely to be temporary. The annual number is getting a boost from what’s called a base effect: The year-ago number was depressed by pandemic-driven shutdowns, so the current figures look large by comparison.

But a strong monthly figure for May, which would come on the heels of a sharp rise in April, would show that prices are moving up quickly for more than just technical reasons. The critical question is how long that will last.

The stakes are high. Inflation can erode purchasing power if wages do not keep up. While a short-lived burst would be unlikely to cause lasting damage, an entrenched one could force the Federal Reserve to cut its support for the economy, potentially tanking stocks and risking a fresh recession.

Outside of the base effect, the pop in prices has been driven by two trends. The economy is reopening from a global pandemic shutdown for the first time ever, and some materials are in short supply as manufacturers try to ramp up production. Also, many households are flush with cash to spend after multiple stimulus checks and months in lockdown.

“It’s going to be another shocking report,” said Laura Rosner-Warburton, a founding partner at MacroPolicy Perspectives. “Don’t be surprised by another epic used car number.”

Ms. Rosner-Warburton was referring to the 21 percent annual increase in used car prices reported for April, the most striking example of the bottlenecks driving inflation. Demand for cars — used and new — is outpacing supply in part because of a global shortage of semiconductors that has hobbled vehicle production. (It has affected video-game console supplies, too.)

That chip shortage, which arose from factory shutdowns during the pandemic and problems like a drought in Taiwan, could take time to resolve — but it should ultimately prove temporary. In a sign that companies are finding a way to adjust to the global shortage, General Motors said earlier in June that will start to increase shipments of pickup trucks and other vehicles to dealers.

Percent Change, April 2021 from April 2020

But economists including Ms. Rosner-Warburton are looking for other signs that the price increases will prove longer lasting: She is particularly watching rent and owners’ equivalent rent, two components that make up a big share of inflation and which move slowly. So far, they have remained relatively subdued.

For now, “most of it is coming from those transitory factors,” she said.

Regardless, the fresh inflation figures are likely to add to the debate in Washington, where the White House and Fed have been playing down the recent run-up as temporary even as Republicans have used the price gains as ammunition in their critiques of Democrats’ spending.

The data comes just ahead of the central bank’s June meeting, which will give Fed Chair Jerome H. Powell another opportunity to address how he and his colleagues plan to achieve their two key goals — stable prices and full employment — in the tricky post-pandemic economic environment.



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