US inflation accelerated at its fastest pace in more than 6 years, according to the Consumer Price Index. Up 0.2% in May 2018 from April 2018 and +2.8% from May 2017, the annual gain in inflation is the biggest since February 2012.

This data reinforces the Federal Reserve’s outlook on pursuing slow but steady, graded interest rate hikes to counter inflation rises. (The Fed is legally bound to use interest rates to monitor and safeguard the overall economy against inflation ups and downs.) This data also points to an erosion of wage gains, however tepid those gains may be, despite a low in unemployment rates.

The Consumer Price Index is based upon prices of food, clothing, shelter, transportation, doctor/dentist fees for services, drugs and other goods and services people buy for day-to-day living. Prices are collected monthly in 75 urban areas. Those prices are based upon expenditures of 93% of the total US population including professionals, self-employed, poor, unemployed and retired people.

Again, the differential in consumer prices including food and energy in May 2018 from April 2018 represented a 0.2% inflationary increase. The differential in consumer prices including food and energy in May 2018 from May 2017 represented a 2.8% inflationary increase.

This inflationary increase is a continuing trend that began at the beginning of 2018. Take a look:

January 2018 – 2.1%

February 2018 – 2.2%

March 2018 – 2.4%

April 2018 – 2.5%

May 2018 – 2.8%

Clearly, the Federal Reserve’s interest rate increases in terms of both frequency and escalation stem from this continuing trend of inflationary growth.

This 2.8% increase in inflation includes food and energy costs along with all the other goods and services mentioned above. The biggest jump in price came from the energy index…a soaring +11.7% increase y/y. The food index remained relatively flat at +1.2$ y/y.

By the way, housing costs, both shelter and lodging, comprise 1/3 of the Consumer Price Index. The housing index was up +2.9% in May 2018, the biggest increase since August 2017.

Also note that inflation-adjusted wages were unchanged y/y. You do the math…

Looking at inflation rates including food and energy indices over a 10-year period, the only two years that had higher inflation rates than 2.8% were…

2008 – +4.2%

2011 – +3.6%

We’ll continue to update you on inflationary rates on a monthly basis along with our regular updates on mortgage interest rates since these two data points directly impact the real estate industry and your bottom line.


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