The Consumer Price Index climbed 4 percent in the year through May, well below the recent peak of 9.1% last June and down from April’s 4.9% increase.
However, core consumer prices, which exclude volatile food and energy categories, climbed 5.3% in May from last year, down from 5.5% in April.
The index for shelter was the most significant contributor to the monthly all-items increase, followed by an increase in the index for used cars and trucks and the energy index, which declined 3.6 percent in May.
On an annual basis, Transportation services increased by 10.2%, followed by an increase in the shelter by 8%, and Energy, on the other hand, dropped by 11.7%.
Since last year, the Fed has aggressively raised rates from low levels to slow economic growth and tame Inflation. Fed officials in May raised the benchmark interest rate to the current range between 5% and 5.25%, the highest level in 16 years.
During the Covid, policymakers overreacted and doled out free PPP money to businesses without due diligence and free handout to many needed. Every policy mistakes have consequences. Overspending and expansionary fiscal policies spurred the hyper Inflation.
Now Federal Reserve is taking the blame for the mistakes of the irresponsible policymakers. Initially, Fed reacted slowly and anchored to the transitory inflation theme. However, Fed was quick enough to raise the rates above 5 percent and have a hawkish approach to growing Inflation.
Given the 5 percent inflation, we are at the cross-section, but we shouldn’t conclude that rates are at equilibrium. Fed needs to stay aggressive on rate hikes and put excess weight on top of Inflation for a prolonged time; that is the only way we can suppress Inflation to reach Fed targeted two percent inflation target.
