Inflation is heating up, with the Consumer and Producer Price Indexes surging by 0.6% and 0.8%, respectively, in May. Worse still, prices were up 5.0% and 6.6% in the latest 12 months, the former of which was the biggest uptick since August 2008, when the U.S. economy was in free fall. In all, inflation has been trending higher since January.
ECONOMIC AND STOCK MARKET COMMENTARY
Inflation is a hot topic on Wall Street these days, with key economic reports showing notable increases in pricing pressures. Specifically, the price index for gross domestic purchases surged 3.9% in the first quarter, up from 1.7% in the preceding period.
Inflation is becoming a concern for Wall Street, with April data on producer (wholesale) and consumer prices proving unsettling. Specifically, the Producer Price Index (PPI) rose 0.6% last month, or twice the projected increase, and 6.2% in the past year.
It has been an unprecedented 12 months. True, 2020 started out routinely enough with just an orderly deceleration in business activity during the winter. But a difficult close to the first quarter followed, with COVID-19 spreading across Asia, Europe, and the new world.
Some good news is starting to trickle in on the economy. Specifically, recent weeks have seen a pickup in vehicle demand, further uneven improvement in manufacturing activity, gains in the services sector, and a rise in exports.
The economy is facing some challenges. Specifically, after last year’s stellar third quarter, in which GDP surged 33.4%, growth slowed to 4.0% in the final three months.
President Joe Biden is hitting the ground running, reflecting the myriad problems he faces as his tenure begins. Such difficulties are headlined by the staggering toll from COVID-19, the need to get Americans vaccinated, efforts to put a struggling economy back on track, and attempts to get stimulus payments and pandemic relief to financially strapped individuals and families.
President Biden faces daunting challenges as he begins his term. First, there is the need to address the sharp divisions that weigh on our country, spotlighted by the former President’s second impeachment trial. Second, there is the fight against COVID-19. That disease has claimed more than 400,000 U.S.
The economy is likely to weaken further as 2021 begins. Specifically, GDP growth, which could slow to 3%-5% in the now-ending period, might then ease to 1%-3%—or less—in next year’s initial quarter. And even that listless showing assumes a COVID- 19 relief package will pass the Congress.