Reopening U.S. economy fuels inflation, labor market recovery

Reopening U.S. economy fuels inflation, labor market recovery

U.S. consumer prices rose solidly in May, leading to the biggest annual increase in nearly 13 years as a reopening economy boosted demand for travel-related services, while a global semiconductor shortage drove up prices for used motor vehicles.

The pandemic’s easing grip on the economy was also underscored by other data on Thursday showing the number of Americans filing new claims for unemployment benefits fell last week to the lowest level in nearly 15 months.

Vaccinations against COVID-19, trillions of dollars from the government and record-low interest rates are whipping up demand, leaving companies scrambling for raw materials and labor. Very expensive used cars and trucks accounted for about one-third of the rise in consumer inflation last month, reflecting a global semiconductor shortage, which is undercutting auto production.

May’s inflation drivers appear to be temporary, fitting in with Federal Reserve Chair Jerome Powell’s repeated assertion that higher inflation will be transitory.

“Parts of the economy contributing the most to inflation in April and May are going through understandable short-term adjustments or merely reflating back to ‘normal’ levels,” said Chris Low, chief economist at FHN Financial in New York. “Areas not impacted by the pandemic are moderating the CPI rise. But this report confirms demand is exceeding supply.”

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Source: Reuters

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