The U.S. CPI hit a new high in more than 40 years in May, the Fed's hawkish attitude was hard to change, and gold dived by more than $8

GMT+8 At 20:30 on Friday (June 10), the United States announced the May CPI data, which hit a new high in more than 40 years. It is difficult to shake the aggressive hawkish posture of the Federal Reserve. As of press time, spot gold fell $8.45 to $1,824.93 an ounce.

Specific data shows that the annual rate of the US CPI in May was 8.6%, a new high since December 1981, 0.3 percentage points higher than the expected value and the previous value; the annual rate of the US core CPI in May was recorded at 6%, although lower than the previous value of 6.20 %, but 0.1 percentage points higher than expected.


Consumer demand recovered, but the normalization of global supply chains faltered, sending prices soaring and inflation well above the Fed's 2% target. The Fed moved quickly as a result, raising its target federal funds rate by 75 basis points since March.

Government relief measures during the pandemic could complicate the Fed's efforts to fight inflation. Households are still holding trillions of dollars in extra cash by some estimates. So even price growth remains high, far outpacing wage growth.

Consumption can be maintained, whether to meet higher home mortgage payments when interest rates rise, or to fund higher prices for necessities at the expense of demand such as consumer durables.

But if this situation continues, it is bound to restrain the purchasing power of consumers. Consumption contributes about 70% to the U.S. economy, and for President Biden and his Democratic Party, high inflation could cost them in November's midterm elections.

"It's a painful environment for consumers to be saving down, their credit use up, and struggling to cope with higher food and energy prices," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Va.

Changes in consumption habits

High inflation not seen in decades is prompting people to change their shopping habits, especially at grocery stores. About 90 percent of Americans are concerned about food prices, according to a Harris Poll on behalf of Alpha Foods.

Abbey Lunney, managing director of HarrisPoll, said: "Initially, people were most concerned about gas prices, followed by groceries and other forms of discretionary spending. But over the past few weeks, grocery has become the number one problem for Americans. "

More than half of those surveyed said rising meat prices have made them more curious about trying plant-based and dairy products. Others are also changing their shopping habits, like traveling less or giving up some of their favorite brands. Everyday food prices such as cereals, eggs and hamburgers have seen double-digit growth over the past year, and housing costs have become increasingly expensive, meaning consumers will see little relief from upward pressure on prices anytime soon.

Is the Fed slowing down after July?

Following the release of May CPI data, market participants will turn their attention to next week's Federal Reserve policy meeting. At its meetings this month and July, the Fed is expected to continue its May policy rhythm -- continuing to hike rates by 50 basis points each.

But some economists worry that a sudden Fed tightening could tip the economy into recession. And recent broader data covering labor, manufacturing and housing markets suggest that the fiery economic outlook is cooling itself, making it possible for the Fed to soften its hawkish stance after July. The Fed has pledged to pay close attention to future economic data releases.

U.S. goods and services inflation should moderate in the coming months, a senior U.S. official said on Thursday, “Despite disruptions (the ongoing impact of the Russian-Ukrainian conflict on food and energy prices), we remain confident that the economy can and is recovering from the pandemic. The historic recovery transitions to more stable growth."

In a speech in late May, Ian Shepherdson, chief economist for macroeconomics at Pantheon, gave reasons for optimists: improving supply chains, slowing house price appreciation expectations, rising inventory pressures on corporate earnings and wages Slower growth could lead to CPI falling below 3% early next year.

He insisted that signs of this could come in time for the Fed to slow rate hikes to 25 percentage points by this fall, saying, "If you model inflation from the bottom up, all these variables you would consider start Going in the right direction."

How fast can the situation change?

Fed officials have said they want convincing evidence that inflation is slowing before slowing rate hikes. For politicians, the retail price of gasoline at $5 a gallon is clearly painful.

President Joe Biden recently unveiled his plan. In an op-ed in The Wall Street Journal, he said steps would be taken to address supply chain problems and reduce budget deficits. But such measures are likely to be a drop in the bucket. The president himself has pointed out that much of the heavy lifting must be done by the Fed.

Changes may not happen anytime soon, Citi economists Veronica Clark and Andrew Hollenhorst wrote: "The risk of continued recovery and upside in service prices would further suggest that an overly tight labor market is a key factor in driving inflation, which could prompt the Fed to Maintain the rhythm of rapid rate hikes."