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Reopening U.S. economy fuels inflation, labor market recovery

EconomyJun 10, 2021 04:56PM ET
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2/2 © Reuters. FILE PHOTO: Britni Mann speaks with a potential employer during a job fair at Hembree Park in Roswell, Georgia, U.S. May 13, 2021. REUTERS/Chris Aluka Berry 2/2

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. consumer prices rose solidly in May, leading to the biggest annual increase in nearly 13 years as a reopening economy boosted demand for travel-related services, while a global semiconductor shortage drove up prices for used motor vehicles.

The pandemic's easing grip on the economy was also underscored by other data on Thursday showing the number of Americans filing new claims for unemployment benefits fell last week to the lowest level in nearly 15 months.

Vaccinations against COVID-19, trillions of dollars from the government and record-low interest rates are whipping up demand, leaving companies scrambling for raw materials and labor. Very expensive used cars and trucks accounted for about one-third of the rise in consumer inflation last month, reflecting a global semiconductor shortage, which is undercutting auto production.

May's inflation drivers appear to be temporary, fitting in with Federal Reserve Chair Jerome Powell's repeated assertion that higher inflation will be transitory.

"Parts of the economy contributing the most to inflation in April and May are going through understandable short-term adjustments or merely reflating back to 'normal' levels," said Chris Low, chief economist at FHN Financial in New York. "Areas not impacted by the pandemic are moderating the CPI rise. But this report confirms demand is exceeding supply."

The consumer price index increased 0.6% last month after surging 0.8% in April, which was the largest gain since June 2009. Food prices rose 0.4%, but gasoline declined for a second straight month. In the 12 months through May, the CPI accelerated 5.0%. That was the biggest year-on-year increase since August 2008 and followed a 4.2% rise in April.

The jump partly reflected the dropping of last spring's weak readings from the calculation. May was probably the peak in the CPI, with these so-called base effects expected to level off in June. Economists polled by Reuters had forecast the CPI rising 0.4% in May and vaulting 4.7% year-on-year.

Excluding the volatile food and energy components, the CPI increased 0.7% after soaring 0.9% in April. The co-called core CPI was boosted by a 7.3% rise in used cars and trucks prices. New vehicle prices also increased strongly.

With at least half of the adult U.S. population fully vaccinated against COVID-19, Americans are traveling.

Car rental prices increased 12.1% in May. The cost of airline tickets and hotel accommodation also rose.

Consumers paid more for motor vehicle insurance, furniture and bedding, rents as well as apparel. But they got some relief from healthcare costs, which dipped 0.1% as prices for prescription medication fell 0.3%.

The core CPI shot up 3.8% in the 12 months through May, the largest increase since June 1992. The Fed has signaled it could tolerate higher inflation for some time to offset years in which inflation was lodged below its 2% target, a flexible average.

The U.S. central bank's preferred inflation measure, the personal consumption expenditures price index, excluding the volatile food and energy components, rose 3.1% in April, the biggest gain since July 1992. The Fed slashed its benchmark overnight interest rate to near zero last year and is pumping money into the economy through monthly bond purchases.

"Figures like today's CPI will certainly be raising eyebrows at the Fed, but the bottom line is they will likely need additional evidence to determine whether upward inflation pressures will be more persistent," said Charlie Ripley, senior investment strategist for Allianz (DE:ALVG) Investment Management.

Investors shrugged off the strong inflation, lifting stocks on Wall Street. The dollar was steady against a basket of currencies. U.S. Treasury prices were mixed.

Graphic: Inflation - https://graphics.reuters.com/USA-STOCKS/jznvnwqkjpl/inflation.png

LAYOFFS EASING

Inflation could get a boost from the labor market, where layoffs are subsiding. Employers are raising wages as they compete for scarce workers, with millions of unemployed Americans remaining at home because of trouble securing child care, generous unemployment benefits and lingering fears of the virus even though vaccines are now widely accessible.

In another report on Thursday, the Labor Department said initial claims for state unemployment benefits fell 9,000 a seasonally adjusted 376,000 for the week ended June 5. That was the lowest since mid-March 2020 when the first wave of COVID-19 infections barreled through the country, leading to closures of nonessential businesses.

Claims have now decreased for six straight weeks. The drop in applications was led by California and Pennsylvania.

Graphic: Jobless claims - https://graphics.reuters.com/USA-STOCKS/nmopaeblqpa/joblessclaims.png

Though layoffs are subsiding, claims remain well above the 200,000 to 250,000 range that is viewed as consistent with a healthy labor market. They have, however, dropped from a record 6.149 million in early April 2020.

Further decreases in applications are likely as Republican governors in at least 25 states, including Florida and Texas, are cutting off unemployment programs funded by the federal government for residents starting on Saturday.

These states account for about 40% of the economy. The benefits being terminated early include a weekly $300 unemployment subsidy, which businesses say is discouraging the jobless from seeking work.

The number of people continuing to receive benefits after an initial week of aid decreased 258,000 to 3.5 million during the week ended May 29. These so-called continuing claims had been stuck in a 3.6 million-3.8 million range since the middle of March, indicating workers were rejoining the labor force.

At least 15.3 million people were on unemployment benefits under all programs during the week ended May 22. Worker shortages, despite employment being still 7.6 million jobs below its peak in February 2020, boosted wage growth in May. There are a record 9.3 million unfilled jobs in the economy.

Reopening U.S. economy fuels inflation, labor market recovery
 

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Comments (13)
perplexed76 .
perplexed76 . Jun 10, 2021 1:13PM ET
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data will be revised in worse next week as usual
David Bologa
David Bologa Jun 10, 2021 1:13PM ET
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what do you mean
Sumit Sharma
Sumit Sharma Jun 10, 2021 11:13AM ET
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I am not able to understand despite higher inflation there are no correction measures has been taken ....why?? if anybody knows better please explain ...I am not a student of economics... genuinely I want to understand... regards
John Whitfield
John Whitfield Jun 10, 2021 10:37AM ET
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inflation fell MoM and can be attributed to used car sales increase in price due to lack of production of new cars, ransoms on meat and pipeline "russia" eyeroll. who benefits from a popping "bubble" market that they keep blowing money into? who keeps drilling the fed over rates? who controls 40 percent of market orders and is one of the top donors to the current admin and how much has campaign money increased since 2008 10k per congressional seat payraises ironically the same time derivatives are made widely available to retail after the financial crisis? take the blinders off the bulls are fighting a financial war against a group of elites that will fill their campaign coffers full on the fall of the market.
ELEFTHERIOS XANTHAKOS
ELEFTHERIOS XANTHAKOS Jun 10, 2021 9:41AM ET
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The markets ignore the bad news (inflation) and over valuate the good news (unemployment). Typical pre bubble burst behaviour…
Carlos GV
Carlos GV Jun 10, 2021 9:41AM ET
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inflation is expected and wont last forever...
Matt Kay
Matt Kay Jun 10, 2021 9:41AM ET
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Carlos GV we print 100 billion every WEEK. ha. wont last forever...
Andres Cepeda
Andres Cepeda Jun 10, 2021 9:41AM ET
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120*
Richard Tomlin
Richard Tomlin Jun 10, 2021 9:41AM ET
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so right on pre bubble burst gas prices keep rising every thing else will pre O8 same thing happened
Jouni Matero
Jouni Matero Jun 10, 2021 9:38AM ET
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There we go again. Figures way weaker than expected and inflation way higher than expected but market goes up. Well done America, who shall b..w the whistle first?
John Snowden
John Snowden Jun 10, 2021 9:38AM ET
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He said we'd rebuild better. Maybe better than Zimbabwe?
Stan Smith
Stan Smith Jun 10, 2021 9:37AM ET
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Sneaky double headline...just ignore inflation...fudged job numbers are great!...what a hide and seek farce this has become
Stan Smith
Stan Smith Jun 10, 2021 9:35AM ET
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Stocks and the dollar up bad inflation numbers..wait ...what???
Larry DeAngelis
Larry DeAngelis Jun 10, 2021 9:24AM ET
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If It was announced Armageddon!Stocks would go up and that may happen soon!
Matt Kay
Matt Kay Jun 10, 2021 9:17AM ET
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*Walter Bloomberg: *Lagarde: Unanimous Support For Bond Purchases At "Significantly Higher" Rate Printer goes BRRR and will continue to go BRRR until low and middle class is destroyed and only billionaires remain.
Johnny Bean
Johnny Bean Jun 10, 2021 9:16AM ET
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i love all the people
Hà Phan Đăng
Hà Phan Đăng Jun 10, 2021 9:10AM ET
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Ow my god!
Matt Kay
Matt Kay Jun 10, 2021 9:08AM ET
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Inflation 5% stonks go up! Makes sense. Billionaires turned stonk market into a manipulated joke of the world.
Thomas Monteiro
Thomas Monteiro Jun 10, 2021 9:08AM ET
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YoY my friend. YoY. Try to remeber how was America this same month last year
Jouni Matero
Jouni Matero Jun 10, 2021 9:08AM ET
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5T$ printer money on the market...
Testing Man
Testing Man Jun 10, 2021 9:08AM ET
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by last year June things started stabilizing. this inflation is unsustainable. let's see what it says next month and in Aug.
Gm Hoek
Gm Hoek Jun 10, 2021 9:08AM ET
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Just because you don't understand how the market works, doesn't mean the market is manipulated.
Amine Fourali
Amine Fourali Jun 10, 2021 9:08AM ET
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Gm Hoek and how does the market work Mr the expert please?
Eddy Goh
Willam Jun 10, 2021 9:07AM ET
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Okok noted
 
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