The May consumer price index rose 8.6% year-on-year, the highest level since 1981. Economists had forecast an increase of 8.3%.
“We think the Federal Reserve now has good reason to surprise markets by walking more aggressively than expected in June,” Barclays analysts wrote in a research note on Friday. We realize it’s a close call and could happen in June or July. But we are changing our forecast to demand a 75bp increase on June 15.”
The White House, meanwhile, admitted the number was “uncomfortably high,” further fueling investor fears of policy action.
“The biggest risk to consumption, employment and the economy in general is not a slowdown in organic growth, but the extent to which extreme energy/food price increases could cause central banks to push (ineffectively) against the cap, and [the economy could] essentially falling into a damaging policy error,” Rick Rieder, chief investment officer of Global Fixed Income at BlackRock, wrote in a note.
Still, Federal Reserve policymakers have historically focused on personal consumption spending, not CPI as their preferred measure of inflation.