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US consumer prices expected to have accelerated their climb in May

US consumer prices are expected to have further accelerated in May as pent-up demand combined with higher prices for goods stokes concerns about inflationary pressures. 

Economists surveyed by Refinitiv expect the Bureau of Labor Statistics to report that consumer prices rose 4.7 per cent in May compared with a year ago, which would represent the steepest increase since a 4.9 per cent acceleration in September 2008. Consumer prices increased 4.2 per cent in April.

The data is due to be released at 8:30am US eastern time on Thursday.

Stripping out volatile items like food and energy, so-called core CPI is expected to rise from 3 per cent in April to 3.4 per cent in May on an annual basis.

While the recent surge in prices can partly be attributed to the low levels of inflation at the start of the coronavirus pandemic, it has also been driven by higher prices for goods and demand for rental cars, hotels and flights as the US economy has reopened.

Used car prices, which jumped amid a semiconductor shortage that hit car production, are expected to ease, but still remain elevated. 

Federal Reserve policymakers have been more tolerant of inflation partly because consumer prices were subdued for so long despite loose monetary policy.

The Fed has repeatedly said the recent inflation rise was likely to be transitory, not sustained. Minutes of the central bank’s April monetary policy meeting showed officials maintained a relatively sanguine approach to inflation.

But Gregory Daco, chief US economist at Oxford Economics, said that while some factors driving up inflation — like base effects and higher energy prices — would dissipate, some increases would be “sticky”. 

Some, including Republican lawmakers, argue that the Fed has underestimated the risk of higher inflation.

“Inflation fears are a little bit like phantom limb pain in that they actually cut off the problem but it still hurts, and it hurts because the fear is remembered even if the limb is gone,” said James Sweeney, chief economist at Credit Suisse. 

He said there were signs that demand was responding to higher prices in a normal way, pointing to the decline in mortgage applications as one example. “That’s evidence that we are not in a serious expectations-driven inflation increase,” he said.

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