Inflation Surging

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Key Highlights

  • Consumer prices increased +5% for the 12 month period ending in May
  • This +5% uptick in inflation comes after April’s +4.2%
  • Overall increase +.08% m/m

Prices Soaring for Some Things

The US Labor Department’s latest monthly report on consumer prices indicates that prices increased +5% for the 12-month period in May.

This May increase of +5% comes right behind April’s uptick of +4.2% in consumer prices, or a month-to-month increase of +0.8%.  This is the highest increase in consumer prices since August 2008.

Economy is “Red Hot”

Warren Buffett said the economy is “red hot.”  Buffett added, “It just won’t stop.  People have money their pockets…it is not a price-sensitive economy right now.”

Check Out These Price Increases

It’s not just houses.  Take a look at these price upticks over the last year:

  • Used cars – +29.7%
  • New cars – +3.3%
  • Cost of rental cars – doubled
  • Airfares – +24.1%
  • Chipotle menu prices – +4%
  • Rent of primary residence – +1.8%

Plus, you may find that your neighborhood Starbucks could be short on ingredients and supplies.

The Causes?

Supply chain snarls that are causing key shortages of products such as computer chips for cars, smartphones, televisions, washing machines and refrigerators are one big factor in both product shortages and higher prices.

According to Goldman Sachs, this shortfall in computer chips and semiconductors is likely to last until at least this fall and perhaps in 2022

Why? Because the Taiwan Semiconductor Manufacturing Company produces approximately 80% of microcontroller units worldwide.

Add US government sanctions on Chinese tech companies and extreme weather to the mix.

“COVID-19 is still a major consideration, but it is no loner the main bottleneck,” said Canalysresearch manager.  “Supply of critical components, such as chipsets, has quickly become a major concern…”

And, like Warren Buffett said, “People have money in their pockets…” and demand for products is sky-high.

Are Inflationary Pressures Already Easing?

The March to April jump in prices was much more than the +0.6% jump in prices from April to May when prices jumped +4.2%..

Investors think this slight price increase from April to May is good news. Just take a look at the rising Dow Jones Industrial Average.  It was up about +.05% the morning of this consumer price announcement from the Labor Department was madeand yields on 10-year government bonds (highly sensitive to inflation concerns) remained flat.

Julia Coronado, founder of MacroPolicy Perspectives, said, “We are at peak heat, this is the moment.  We know we’ll get a fade – they question is, how big a fade?”

Janet Yellen, US Treasury Secretary, said last weekend, “While we’re seeing some inflation, I don’t believe it’s permanent.  We’ll watch this very carefully, keep an eye on it and try to address issues that arise if it turns out to be necessary.”

 

Thanks to National Public Radio, The New York Times and the US Labor Department.

 

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