The Consumer Price Index zoomed 8.6% in May compared to a year ago, bypassing the 8.5% gain in March and setting the highest rate since 1981. The release of the news on Friday triggered a sell-off on Wall Street.
Economists at PNC Financial Services Group Inc. are now forecasting that the Federal Reserve will raise its monetary policy rate by 175 basis points further from the 0.75% to 1.00% range installed at the Fed’s May 2022 meeting in order to fight inflationary pressures.
Pittsburgh-based PNC’s official CPI inflation forecast has risen to a 5.2% year-over-year pace to close out 2022, and not approaching the Fed’s 2.0% target until mid-2024.
Kurt Rankin, PNC (NYSE:PNC) senior economist, noted that core CPI, excluding fuel and energy prices, was up 6% year-over-year, down slightly from 6.2% in April. Energy, food and beverages, housing and transportation led price gains in May and month-over-month growth accelerated in all major categories with the exceptions of medical care and recreation.
“The expectation of consumer spending transitioning to services from goods entering the summer months this year should push this category back into accelerating price growth territory in the months to come, doubling down on what promises to be continued price pressure at gasoline pumps given oil price trends through June thus far,” Rankin wrote in a report issued on Friday.
Food and beverages price growth accelerated to 1.1% on a month-over-month basis, a new pandemic-era high for this category, and is representative of the most significant concerns with inflation’s persistence.
“While consumers could choose to travel less, despite strong pent-up demand, and might be able to delay major purchases such as vehicles, higher prices for food, gasoline and even apparel … are far less avoidable,” Rankin wrote. “Inflation expectations should be well-entrenched among consumers by now, suggesting that the ability of ‘demand destruction’ among consumers toward offering an assist to the Fed in tamping down price gains will be established in the next few months. Consumers will either choose to continue spending despite higher prices, making the Fed’s choices more difficult through the second half of this year, or to pull back spending in response to higher prices — especially regarding everyday necessities. A spending pullback would slow the economy more on the immediate horizon but could be the difference in shallowing the depth of any potential recession in 2023 by making the Fed’s job a bit easier.”
Source: bizjournals.com