Inflation Spikes Again, But Will it Last?

June 10, 2021

Consumer prices saw a big jump in May, with the consumer price index (CPI) climbing 5% as compared to a year prior. That is the biggest increase since 2008. The “core” CPI, which excludes volatile components like food and energy, was up 3.8% year-over-year, the biggest annual increase since 1992.

The financial markets took the news of the surge in stride, with most investors seemingly agreeing with the Federal Reserve, which has stated that the period of high inflation will likely be transitory. The Fed expects several months of elevated prices as pent-up demand and lagging supply chain issues work themselves out, and those year-over-year price comparisons may be misleading because of the downward price pressure seen in the early days of the pandemic.

The Wall Street Journal analyzed the inflation data and found that much of it may be temporary. The ongoing semiconductor shortage has limited the production of new cars, causing the prices of used cars to surge 30% from a year earlier. This shortage, coupled with a booming housing market, has also led to steep price increases for household appliances.

The Journal also notes, however, that in the months ahead, we may see inflation heat up further. Many of the supply shortages are expected to continue until later this year. Moreover, many employers struggling to find workers are raising wages, and these increased labor costs are likely to result in higher prices for the consumer, which could lead to more lasting inflationary pressure. 

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