Well, here we go again. Another month and another rise in the Consumer Price Index. It rose 0.7% in May, along with the Core Rate of Inflation going up 0.1%. And while the Core Rate really didn’t rise that much, it’s still pretty indicative of the rising prices in America, in that it doesn’t take into account food and energy, which are the significant factors in the rise within the Consumer Price Index.
With food and energy (i.e. gas) prices going up, that meant many nonmanagement employees had to take pay cuts. This caused the average weekly earnings for this group to fall for the second straight month.
So this is great, huh? Food and gas are going up, and earnings are going down. This would all make sense if we lived in a Bizzaro economy.
What it’s basically coming down to is that people can’t afford to do and buy other things. Afterall, people have to eat and they have to go to work. And in places and societies where stealing food and walking to work aren’t options, people are going to fork over the money they need to do those two things.
It would be nice if the Federal government would lower interest rates, but the small increase in the Core Rate will give them just enough reason to not have to do that. This means that the people on Wall Street will continue to celebrate, while the banks join along in harmonious song titled, “I’m Collecting All Your Money.”
A lot of the inflation, which annualized at 2.7% in May, can be attributed to housing cost. Paying the gas bill is obviously a large part of that, and the 3-5% increases in beef, poultry and pork aren’t helping consumer costs either. So what will the government do?
Nothing. Not yet. Obviously, it’s too early to say whether inflation is or is not an issue in the market, and so the government can’t really fix this one. At least not as long as an increase in food and energy costs don’t spill over into other parts of the economy. So the government will sit back and slowly analyze what’s going on. In the meantime, let investors continue to cheer as stocks and bonds go on the rise, along with their hit single.
Chart provided by the NY-Times.