The Federal Reserve celebrates as consumer prices rise by only 4% in May compared to last year, aided by a drop in egg prices, bringing them closer to the target of 2% inflation. Amidst a booming stock market, explore the positive trends in the economy.
The Federal Reserve is aware that an omelet requires several cracked eggs. Those eggs are now less expensive. Consumer prices rose by only 4% in May compared to a year earlier, according to data released by the Labor Department on Tuesday. This is significantly less than the 9% peak reached in June of last year and even less than the 4.9% increase in April, bringing the Fed’s 2% inflation target closer than ever. It might be appropriate to celebrate—at least a little bit—now that egg prices have dropped and the stock market is booming.
Nation of Deflation
Even molecularly, things are good. Inflation rose 0.1% in May, down from 0.4% in April. Many economists prefer core consumer prices, which exclude fluctuating energy and food costs. May core consumer prices rose 5.3% annually.
The CPI decline likely relaxed Fed members after their two-day June meeting, which began Tuesday. Tuesday’s good results supported the central bank’s one-month rate hike and inflation-fighting postponement. Improvements may delay July rate rise. “This CPI report is everything the Fed needs to pause—there is deflation and/or disinflation in every category,” stated Harris Financial Group managing partner Jamie Cox, according to Bloomberg. In June, tightening is unnecessary.
Consumers may already be noticing the effects of the deflation in the following main categories:
- The Wall Street Journal reported that May new-lease rent asking rates grew just under 2% year over year. The year-over-year decrease is one of the largest ever. Redfin data shows that asking rents dropped 0.6% in May, which was unprecedented before the pandemic.
- In the meantime, gas prices dropped by about 6% in May and are currently around 20% lower than they were a year ago (Thanks again, Putin). In addition, even though used automobile prices rose in May, leading signs in the private sector indicate that a decrease is imminent.
Moreover according to a research by Wells Fargo economists Sarah House and Michael Pugliese, “we expect a more pronounced slowdown in core inflation in the coming months.” That being said, mission accomplishment should not be mistaken with directional advancement.
The tech-heavy S&P 500 gained for a fourth day on Tuesday after entering a bull market last week. The Fed’s anticipated rate freeze has boosted Big Tech’s stock on Wall Street. Investors are “exclusively long” tech equities, the most since 2020, according to the latest Bank of America global fund manager poll. We hope November 2021 doesn’t plummet.