US released its CPI for May coming in at 0.6% which is higher than both; the projected reading of 0.5% and the prior reading of 0.2%. As for its annual CPI, it also came in higher at 4.2% which is better than the projected reading of 3.9% and the prior reading of 3.9%.
As we see from the data, inflation has now become the number one concern in the markets as it has outweighed the effects of weaker growth in the economies. And concerning the US, May's reading marked the fastest gain in six months supported by none other than the escalation of food and energy prices.
Energy prices rose 4.4 percent this month after seasonal adjustments being the largest gain since November where gasoline alone rose 7.5 percent. As for food prices, they rose 0.3 percent after beef inclined 1.5 percent offsetting the drop seen in pork, fruit and dairy prices.
But despite inflation still above target and comfort zones, May core CPI was inline with expectations at 0.2 percent inching higher from 0.1 percent. The yearly reading was also inline with both the previous and predicted reading of 2.3 percent. This is just showing that an inflationary spiral has yet to take place.
This is not affecting the hawkish stance by the Feds as it just added more support that upside risks to price stability remain and they can actually hike rates without having to worry much about growth especially after the released of yesterday's retail sales that indicated spending has picked up in the economy as the stimulus packages' effects emerge.
In a different report by the Labor Department, real weekly earnings fell 0.4 percent this month while dropping 1.2 percent in the past year. With these stagnant wages, the inflationary cycle isn't being fueled since the high crude prices are gradually bringing down the standard of living of American's.
Several areas in the economy also showed slight gains as medical care prices rose 0.2 percent while recreation prices rose 0.1 percent. Education and communication prices rose 0.4 percent. Shelter costs rose a mere 0.2 percent in May as the housing sector and the initiator of problems is still deteriorating. On the other hand, prices that fell included apparel which dropped 0.3 percent and drug prices which have fallen 0.7 percent.
Crude, gasoline, diesel...they're all under the same title ENERGY PRICES! And as prices are flying, the number one topic heading the agenda at the G8 meeting is the soaring oil prices that are still on the rise. With OPEC refraining from boosting production because they are saying that speculative trading has done this to prices, oil is getting all the support it needs.
But just incase they couldn't reach a solution on how to ease crude prices it seems that all the financial officials are demanding a stronger dollar and are holding onto that idea since it will definitely be the cure needed. If the dollar maintains its bullish momentum in the markets against the majors then it will definitely shift investment from crude as a hedge against inflation and possibly will result in a cash outflow from the energy markets.
Finally, the University of Michigan released its preliminary reading for June showing that consumers have pretty much lost confidence as it was reported at 56.7 revised from a previous advanced reading of 59.8. The current economic conditions index fell to 68.7 from 73.3.
Looking back at all the spending which was seen reflected in the retail sales reading, we could say that it was definitely not due to confidence but rather the $600 checks they were reimbursed in which they decided to pretty much spend every penny of it in the markets.