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Inflation Soars Back to 13-Year High

Yesterday, the US Department of Labor released data on the Consumer Price Index (CPI). The figure reached 5%, showing a monthly rise of 0.6% over May and a 1,2% increase from the same period in 2008.

Cars, flights, clothing, and home goods prices have risen the most. Only the sale and purchase of second-hand vehicles accounted for 27,9%, a third of the increase. The price of car rental has soared by 110% in May. Airfares are up 24.1% from the previous year, along with hotel prices which recorded their highest ever figure – a 9% increase over the same period last year.

According to Bloomberg, the data did not seem to have a significant impact on the markets due to the belief that inflation will be transitory. The S&P 500 hit a record high and the Nasdaq was up 0.1% thanks to a rebound in technology stocks. In contrast, 10-year Treasury yields fell 1.43% to their lowest point since March. Oil remained around $70 a barrel, and Bitcoin hovered around $36,700. The dollar weakened.

The Federal Reserve (Fed) has already commented on the April figure saying that the numbers are a consequence of the reopening of the economy, the return to normality after the pandemic, and a successful vaccination program. The Fed expects the inflation rate to rise temporarily until it stabilizes. A rise could force the central bank to withdraw fiscal stimulus precipitously, as well as react aggressively to reach the 2% average. The stance has been backed by the European Central Bank which also raised its inflation forecast, as well as emergency bond purchases to support the euro since yesterday.

Investors could be eyeing the G-7 meeting in the UK and today’s data releases which include the Gross Domestic Product and Manufacturing Production figures in the United Kingdom.
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