U.S. inflation is heating up, right?

You might wonder based on conflicting news reports today (June 15),  when the U.S. released its monthly data on consumer prices.

From FT.com:

Core US consumer prices rose at their fastest rate for five years in May, making it almost impossible for the Federal Reserve to ponder further monetary easing.

But then there was this odd report from Associated Press:

Falling energy prices cooled overall inflation in May, offering some relief to consumers who have been coping for months with high gas prices.

But the AP story goes on to say:

Consumer prices rose 3.6 percent from June 2010 through May 2011, the biggest one-year gain since October 2008. The yearly gain in the index was only 1.1 percent as recently as November.

Reuters spun the story this way:

U.S. core consumer inflation rose more than expected in May to post its largest increase in nearly three years, lifted by steep rises in motor vehicle and apparel prices. … In the 12 months to May, consumer prices rose 3.6 percent, the biggest jump since October 2008, and well above expectations for a 3.4 percent increase.

What it means: May’s 3.6% annual rate, versus the expected 3.4% rate, was a bit of a shock to the stock market, contributing to a fall of 174 points, or nearly 1.5%, in the Dow Jones Industrial Average.

What it means for TIPS: When inflation expectations rise, TIPS mutual funds tend to do well. The TIP ETF was up 0.52% Wednesday.

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4 Responses to U.S. inflation is heating up, right?

  1. …to regain my inflation-fighting chops, you can see my analysis of the CPI here: https://mikeashton.wordpress.com/2011/06/15/the-bloom-is-off-all-roses/ The breadth of the inflation acceleration is what is interesting. Only “Other” saw its year-on-year rise decline.

  2. tipswatch says:

    I am amazed that AP stuck with its story line of inflation ‘cooling’ in May.
    http://www.charlotteobserver.com/2011/06/15/2380520/inflation-slows-in-may-while-factories.html
    Falling energy prices cooled overall inflation in May, offering some relief to consumers who have been coping for months with high gas prices.

    • Let’s face it, that article was probably in the can before the number even printed. When the data came in higher-than-expected, but not MUCH higher-than-expected, the editor said “close enough. Just run it.”

  3. Pingback: Yield on 30-year TIPS? Ouch. | Treasury Inflation-Protected Securities

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