Hot inflation may have become scorching in May and is expected to hit a 28-year high

Greater expectations

Mark Zandi, the chief economist at Moody’s Analytics, said he expects a 0.6% jump in May core CPI. ” The year-over-year growth rate would be 3.65%,” he said. ” That compares to a 4.2% headline pace in April. “I am worried about rent and owners’ equivalent rent because it should go up. The shelter is more than 30% of CPI, and rent costs have bottomed in some cities, Swonk added. ” Some strategists expect the Fed to begin talking about tapering its $120 billion a month in late August when it meets at the Jackson Hole Economic Symposium.

Going beyond the expected price increases

Wells Fargo bond strategists say they will be looking at the data for trends that go beyond the obvious price hikes associated with the economic reopening. Rent, owners’ equivalent rent and medical care services (collectively 50% of the core CPI basket) inflation are muted. Economists are carefully eyeing wages, which have been rising. They do not expect the picture to become clear for several months as workers are expected to come back to the labor force. The 559,000 jobs added in May was lower than expected, but the pace of hiring is expected to pick up as September approaches when federal unemployment benefits run out and schools reopen, allowing parents to return to work.

For the stock market, some inflation is good, especially for those companies that can meet rising costs with higher prices for goods. Inflation becomes negative when it gets too hot and erodes margins. Temple said a hot CPI reading — one that’s much higher than expected — would be a negative for stocks and bonds. I think the worst thing we could have is deflation,” he said. There’s been a consistency of commentary. George Goncalves, head of U.S. macro strategy at MUFG, said investors were looking for an explanation for the surprise drop in yields, but he said it could simply be that the market is not looking for the pace of inflation or economic growth to stay at current levels.

Original Article By Patti Domm