Consumer inflation rose in May. What’s more, small business owners expressed labor and inflation fears. Plus, two important auctions made news.
- Consumer inflation rose by 0.6% in May, per the Consumer Price Index (CPI) report.
- On an annual basis, CPI increased from 4.2% to 5%.
- This reflects the highest year-over-year increase in almost 13 years!
- Core CPI, which strips out volatile food and energy prices, also made headlines.
- Core CPI was up 0.7% in May. Meanwhile, the year-over-year reading increased from 3.0% to 3.8%.
- The Core CPI annual reading achieved the highest annual increase in 29 years!
- It is crucial to monitor rising inflation because it can have a big impact on Mortgage Bonds as well as the home loan rates tied to them.
Inflation & Labor Concerns
Small business owners obsessed over inflation and labor concerns, per the National Federation of Independent Business Small Business Optimism Index. Businesses expecting higher selling prices rose 4 points to 40%, (the highest level in 40 years)! In addition, a record-high 48% of small business owners reported unfilled job openings in May, up from 44% in April.
We saw a small improvement in Initial Jobless Claims last week, as the number of people filing for unemployment benefits (for the first time) decreased by 9,000 to 376,000.
- The number of people who continue to apply for regular benefits is at 3.5 million, while 15.35 million people still receive benefits throughout all programs.
- We likely won’t see meaningful changes in this data until after September, when extended benefits expire.
- Even so, the situation could prove challenging for many families relying on schools or childcare to open fully.
- Finally, investors closely watched the 10-year Treasury and 30-year Bond auctions held last week on Wednesday and Thursday, respectively.
Red Hot Consumer Inflation
The Consumer Price Index (CPI) measures inflation on the consumer level. CPI rose by 0.6% in May. The year-over-year reading increased from 4.2% to 5%, which was the highest year over year increase in almost 13 years!
- Core CPI, which strips out food and energy prices, was up 0.7% in May.
- On a year-over-year basis, Core CPI increased from 3.0% to 3.8%, which is the highest year over year increase in 29 years!
- Rents rose 0.1% in May, increasing by 2% on a year over year basis.
- A rise in rental prices typically lags. Nevertheless, it could contribute more to service inflation in the coming months.
Remember the reason for the increase in the annual comparisons. In most cases, the readings for the more current months replace the readings from 2020. At that time, much of the economy was shut down due to the pandemic. For example, a 0.7% reading in May 2021 replaced the -0.1% reading of Core CPI from May 2020.
Although economists expected a rise in inflation in May, the big question remained: which factors influencing inflation are transitory.
Inflation & Bonds
Inflation erodes a Bond’s fixed rate of return. In other words, rising inflation can cause Bonds to worsen or lose value. This includes Mortgage Bonds, to which home loan rates inversely tie. When Mortgage Bonds move lower, be it due to rising inflation or other reasons, home loan rates move higher.
Although many factors influence the markets, keeping an eye on inflation remains important.
Since Father’s Day is this Sunday, June 20, consider these ways to spend the day together, no matter the weather.
- If sun is forecast, plan a family hike and picnic to one of Dad’s favorite spots or a new place he’s always wanted to visit.
- Plan a day at the beach or the lake. You could fish or rent jet skis, based on his preference.
- Or consider a backyard party, complete with a plan a tournament of lawn darts, corn hole or horseshoes.
- If the forecast includes rain, plan a day of indoor fun. Start by cooking Dad his favorites for breakfast or brunch in bed.
- Follow that with a movie marathon.
- Or make it a family game day, complete with boardgames galore.
- The nice thing about this plan is that if the weather clears up, you can always move the games or movie marathon outdoors.
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