Inflation may skyrocket to a 28-year high in May. Why’s that?

Inflation has been climbing up during spring, concerning economists and investors. The analysts expect new reports to show that it hit historical levels in May. According to Dow Jones, the consensus forecast for the core consumer price index is 3.5% on a year-over-year basis. It excludes food and energy, though. Still, that’s the fastest annual pace in the last 28 years.

Analysts also forecasted that both headline and core CPI increased by 0.5% in May. They expect Headline CPI’s report to show a 4.7% jump year-over-year, the highest rate since sky-high energy prices bolstered inflation readings in the autumn of 2008.

Diane Swonk, the chief economist at Grant Thornton, stated that inflation would be hot. It could be higher by 5%. Furthermore, the worst of the heat will likely be in the second quarter in terms of the headline. She thinks that it’s still going to be a warm summer, though, with prices on everything kicking up.

Investors are expecting the May CPI report today. Meanwhile, they are debating whether the period of soaring prices is transient, as the Federal Reserve believes, or more persistent and pervasive. In the latter case, the central bank may be forced to back away from its easy policies. That would have some negative results, though, considering that stimulus aid has boosted liquidity, helped keep interest rates low and provided fuel for the stock market’s gains.

What are the analysts expecting to happen in the coming days?

We may see a 0.6% jump in May core CPI – stated Mark Zandi, chief economist at Moody’s Analytics, adding that the year-over-year growth rate may be 3.65%. It hasn’t reached such a high rate since July 1992.

Furthermore, the core CPI jumped above the consensus expectation of 3.5% at last in February 1993. Swonk thinks that headline inflation may reach 4.9% year-over-year. In April, Core inflation was 3% year-over-year, a level it has reached occasionally in the past two decades.