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Business DirectoryCalendarCouponsArticles INDICATOR: May Consumer Price Index

KEY DATA: CPI: +0.6%; Excluding Food and Energy: +0.2%

IN A NUTSHELL:  “Energy and food prices may be surging, but the government has yet to find that it is being passed into the costs of other goods.”

WHAT IT MEANS:  Consumer prices soared in May as the Bureau of Labor Statistics has started to discover that gasoline prices are skyrocketing.  Remember, this is the group that keeps telling us that prices actually fell in May even as the Department of Energy told us the opposite.  Oh, well, consistency is the hobgoblin of small minds.  Food costs were also up, but not that sharply, which is good news.  But otherwise, it was not clear that the pressures coming from energy are showing up in the prices of most other products except for airline tickets.  The big increase in housing expenses came largely from fuel and utilities.  Vehicle prices fell and medical costs were up modestly. Education expenses jumped, but there is nothing new there.  There was a rise in services prices, but they were fairly restrained.  All-in-all, this report did not point to any major surge in inflation.    

MARKETS AND FED POLICY IMPLICATIONS: The public is worried about the rising cost of just about everything yet the data don’t seem to back their concerns.  At least that is what the government says and we know they are infallible – right.  My cynicism notwithstanding, this was a good report that should ease some of the concerns at the Fed about rising inflation.  However, he Fed members are now focused on the potential that inflation expectations are rising which indeed would be a truly worrisome event.  Thus, we will likely see continued speeches telling everyone how the Fed is on guard against any potential inflationary issue.  The jawboning might work, though it rarely does.  As for the markets, this should help both stock and bond investors.  
Joel L. Naroff, Commerce Bank