The long-awaited inflation reading from the United States saw the light of day and shrugged off the highest level of price growth in 41 years. The CPI inflation rate for May 2021 rose unexpectedly.
At 8.6 per cent, it is a new record for inflation in the United States and the fastest price change since December 1981. The market consensus was for a reading of 8.3 per cent. The main reason for such high inflation still seems to be two factors: energy prices, especially fuel prices, and food prices. In the U.S., energy prices rose 34.6 percent in May, the most since September 2005, and food costs rose 10.1 percent, the first double-digit increase since March 1981.
Core inflation, which excludes food and energy prices, was up 6.0 percent in May, a result that was slightly above the market consensus of 5.9 percent. Here, inflation peaked in March 2022, when the core price index was 6.5 percent. Since then, we have seen a decline in this measure of inflation.
So the market got two divergent readings. On the one hand, a local record for consumer inflation, and on the other, falling core inflation. In this case, the Fed can affect mainly core inflation, as it has no influence on fuel or food prices. Nevertheless, the publication seems to spoil the sentiment on the market, where the contracts for American indexes began to fall after the data. The Nasdaq 100 recorded the biggest drop, retreating by about 1.5 percent.
The historical relationship between inflation and indices has sometimes been such that the higher the inflation rate, the lower the indices were. Currently, that relationship may look similar. Meanwhile, the question among investors may again be when will inflation peak? Perhaps the slightly better data will come, but only after the summer season.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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