Inflation has been the boogeyman overshadowing the recovery.
Price increases are showing no signs of letting up. The University of Michigan’s May consumer sentiment survey found that “record proportions of consumers reported higher prices across a wide range of discretionary purchases, including homes, vehicles, and household durables,” according to the survey’s chief economist, Richard Curtin.
The consumer sentiment index dipped slightly in May but was in line with expectations.
That’s why the Fed has said inflation will be temporary.
“We expect most Fed officials to stick to the line that inflation pressures are expected to be ‘transitory’ or ‘transient’,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
There’s likely little wiggle room to the Fed’s line of reasoning unless core inflation pressures stay or wage inflation starts going up.
While prices rose, American incomes took a nosedive in April.
Along with incomes, the savings rate also fell in April, dropping to 14.9% from nearly 28% in the month before.
Friday’s BEA report really hammered home that economic data in the recovery will be bumpy, said Lydia Boussour, lead US economist at Oxford Economics.