US Consumer Prices Jump?

 

US consumer prices climbed in April by the most since 2009. The consumer price index (CPI) increased 0.8% from the prior month, reflecting gains in nearly every major category and a sign burgeoning demand is giving companies latitude to pass on higher costs. Excluding the volatile food and energy components, the so-called core CPI rose 0.9% from March.

The gain in the overall CPI was twice as much as the highest projection in a Bloomberg survey of economists. Sharp increases were reported in prices for motor vehicles, transportation services, and hotel stays as businesses hardest hit by the pandemic reopen more broadly and vaccinated Americans resume social activities and travel.

Treasuries fell on the inflation surprise, with the 10-year yield touching 1.66%, while S&P 500 futures remained lower. The annual CPI figure surged to 4.2%, the most since 2008. Primarily, because of base effect.

While Federal Reserve (Fed) officials and economists acknowledge the temporary boost, it is unclear whether a more durable pickup in inflationary pressures is underway against a backdrop of soaring commodities costs, trillions of dollars in government economic stimulus, and incipient signs of higher labour costs.

The core CPI measure, which was also biased higher by the base effect, rose 3% from 12 months ago. That was the largest since 1996. For the last year the annual core inflation metric had held below 2%.

While challenging for producers, swelling consumer demand has also given firms more confidence that they will be able to pass along some of the new costs. If sustained, the production bottlenecks could pose a risk of an acceleration in consumer inflation.

“Cost-push” factors and imported inflation will drive consumer prices in Malaysia. It is best to implement pre-emptive measures to contain any potential rise in CPI. Supply-side improvements and demand containment strategies are needed to stave off the worst-case possibilities taking shape in the near future.

 

Reference:

1. US consumer prices jump most since 2009, outpacing estimates, 12 May 2021, The Edge