Against the forecasts of economists, who expected a slight decrease, the Consumer Price Index (CPI) rose 1% in the US in May compared to April (0.3% increase); 8.6% in annualized rate. Rental, energy and food prices have continued to drive inflation, which last month reached three tenths more than in April (8.3%). Core inflation, discounting the more volatile prices of food and energy, rose 0.6% in May, and 6% in its annualized rate, according to data published this Friday by the US Bureau of Labor Statistics. Gasoline, with the price per gallon (3.7 litres) around 5 dollars, has been the main cause of the upward pressure, at a maximum since 1980, with a rise of 4.1% in May.
Economists consulted by the economic newspaper The Wall Street Journal pointed out this week that the interannual rate would be 8.3%, the same as that registered in April. They also expected a modest improvement in the underlying, from 6.2% to 5.9%, according to the average of the Bloomberg agency. The general rate of inflation would barely move, one tenth, from 8.3% in April to 8.2%; in total, three tenths below that of March (8.5%). The results put even more pressure on the Federal Reserve, which will announce a new rise in interest rates next week, probably by half a point. For the first time since 2020, the Fed has already increased the price of money twice this year, which is in a range between 0.75% and 1%.
“There are many reasons to think that the slowdown is just around the corner,” Bloomberg analyst Joe Weisenthal wrote on Wednesday, “but it is not here yet, and indeed in one of the most high-profile categories, it is yet to come.” We do not see clear signs of improvement”, added the expert on the prices of used cars, on the constant rise for at least a year. Along with energy and food, the used car market has especially fueled inflation. According to the Manheim index of the sector, prices have risen 12% in the last year.
Some data pointed to a moderation in consumption. A Commerce Department report revealed on Wednesday that imports fell in April for the first time since July 2021, suggesting domestic demand has slowed. The fall in imports and the increase in exports improved the trade balance, by 19.1% compared to the previous month. Major retail chains like Target have slashed selling prices to clear out hoarded excess inventory in recent months. These are subtle signs that containment seems about to prevail over the excessive spending that the recovery from the pandemic brought, although the May data freezes hope.
Yellen: “Unacceptable levels”
Tenth up or down, the US is currently facing “unacceptable levels of inflation,” Treasury Secretary Janet Yellen told the Senate Finance Committee on Tuesday. The person in charge of the Economy caused a political cataclysm last week, with ammunition for the Republican opposition, by admitting that she had been “wrong about the direction that inflation would take” when she predicted last year that the upward pressure on prices represented a problem to short term for the economy. For months, inflation was an elephant in the room, until those responsible for the Fed, with Jerome Powell at the head, stopped considering it transitory to see it as a persistent phenomenon. It is also a serious political problem, in an election year, the mid-term ones, to the point that curbing the loss of purchasing power of Americans is today the priority of the Joe Biden Administration.
He knows in depth all the sides of the coin.
Yellen’s admission of miscalculation has put the White House on the defensive, to prevent self-criticism from fueling Republican criticism. But the message from the head of Economy could not be clearer: the US is facing “a prolonged period of high inflation” and the Administration is updating its forecast for March, an average of 4.7% this year. The optimists who predicted a drop in inflation to 4% year-on-year at the end of the year remain silent while fears of stagflation, the phenomenon defined by high inflation and low growth, as well as recession, increase. The Fed’s ideal inflation target of 2% seems today more than ever light years away.