Chart of the day: Inflation

Inflation is clearly still a problem. The CPI for May 2008 was released by the BLS today showing consumer inflation rising at a 4.2% rate y-o-y, unadjusted for seasonal factors. This is either good news or bad news, depending on how you look at the finer details. The stock market chose to view this report as generally positive and rallied on the back of the news.

Digging into the data, core inflation measures were tamer, as food and energy prices added a considerable amount to the rate of inflation. But, if you fly, eat, drive a car or rent a house, the effects of inflation are very real despite the slower rise in the core.

Any way you look at it, inflation has spiked over the last 18 months. The question is whether that spike will subside or whether we risk a longer-term elevation in inflation. Interestingly, the business press, as always, has focused on meaningless month-to-month data instead of making year-over-year comparisons.

“The inflation rate shot up in May at the fastest pace in six months, pushed higher by soaring costs for gasoline and other types of energy.

The Labor Department reported Friday that consumer prices rose by 0.6 percent last month, the biggest one-month increase since last November, as gasoline costs surged by 5.7 percent. Food prices, which have also been rising sharply, were up 0.3 percent as the cost of beef and bakery products showed big gains.

Core inflation, however, which excludes energy and food, edged up a more moderate 0.2 percent in May. That increase was right in line with expectations and should help relieve worries that the big increases in food and energy could be breaking through to more widespread inflation.”
-Asociated Press, 13 Jun 2008


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