U.S. Inflation Likely to Register Highest Rise Since 2008

Markets are anticipating the release of the U.S. consumer price index (CPI) reading for May on Thursday, with expectations of a surge in the inflation rate.

Data by the United States Bureau of Labor Statistics are likely to show that an inflation reading of 4.7% last month, with core inflation expected to hit 3.4%, compared with April’s readings of 4.2% and 3%, respectively.

The large surge in inflation is expected to temporary, or so the recent remarks by monetary policymakers suggested, as the economy recovers from the coronavirus pandemic’s downturn in the corresponding period of last year.

However, it remains to be seen how inflation rates will rise and how the U.S. Federal Reserve will address the rise in inflation.

Fed officials have repeatedly vowed to be patient with a surge in consumer prices, promising to maintain the current easing policies until substantial further progress is noticed towards achieving full employment and inflation stability at 2%.

A rise in inflation close to 5% would mark the highest rise in consumer prices since 2008 when oil prices reached $150 per barrel.

Although the 4.7-4.8% reading expected for May could represent a peak, with inflation rates easing starting this month, it is yet to be seen how that would reflect on the monthly change in the CPI.

On another note, the European Central Bank (ECB) will announce its rate decision on Thursday, as well as its projections for inflation and growth. In addition, it will give more signals regarding the future of its massive Pandemic Emergency Purchase Programme (PEPP), with expectations it will likely maintain the current pace of asset purchases.

Both data will likely provide an update on the state of the global economic recovery from the pandemic, as well as how central banks are likely to adjust their policies accordingly.