Energy prices rose 3.9% from a month ago, bringing the annual gain to 35%. Fuel increased 16.9% last month and is now up 107% from last year! Fuel prices on average across the U.S. are over $5 a gallon which is some of the highest seen at the pump. And high fuel pricing is causing airline fares to rise significantly, making travel much more expensive. Fares rose 13% last month and are up 38% year over year. On that note, hotel fares are up almost 20% year over year as well. Used car prices jumped 1.8% in just the last month and are up over 16% year over year. Food costs climbed another 1.2% in May, bringing the year over year gain to 10.1%. Rents rose 0.6% last month and are now up 5.2% year over year. Even though the CPI is held in high regard, the rental portion seems to be a much lower metric than what many other analysts are seeing. Others analysts are seeing up to double digit rental increases across the country.
Core CPI inflation, which removes volatile food and energy prices, rose 0.6% in May which was a tenth hotter than the 0.5% anticipated. Year over year, core inflation fell from 6.2% to 6%.
We have been saying that we may not have yet seen peak inflation, and boom a new record high. This hot inflation level most certainly pressured the Fed to hike their Fed Funds Rate by 75bp. After the Fed rate hike and the press conference on Wednesday the bond market reacted positively. The bond market’s arch enemy is inflation so when the Fed steps in to help curb inflation the bond market tends to draw attraction from investors and bond prices increase. When bond pricing increases, long term interest rates, like mortgage rates drop.
Inflation is very important to keep an eye on as it is something we feel every day. The Fed most certainly has their hands full and is in a very difficult spot with trying to combat inflation.