The S&P 500 index is down 3.0% on Friday after the U.S. Bureau of Labour Statistics said inflation accelerated again and hit a new forty-year high of 8.6% in May.
Mohamed El-Erian reacts to the inflation data
The Dow Jones estimate was for a narrower 8.3% year-over-year increase. Discussing the alarming CPI print this morning on CNBC’s “Squawk Box”, famed economist Mohamed El-Erian said:
Jay Powell is losing total control of the inflation narrative. The first step should be explaining why inflation broadcasts are so wrong for so long. Second, he’s got to move. Because if he doesn’t, he’s going to be chasing the market and he’s not going to get there.
Core inflation that excludes the impact of food and energy prices was up 6.0% – marginally worse than a 5.9% increase expected.
CPI could continue to climb in coming months
According to El-Erian, the inflation data on Friday confirms that inflation hasn’t peaked and the U.S. Federal Reserve needs to be more aggressive in its battle against rising prices. He added:
If the first 10 days of June is what prevails for the whole month, the next measures are going to be even higher. We need something to stop this inflationary process broadening throughout the economy and building its own momentum.
The economist also warned the U.S. equities will go down further before they start to recover. Real average hourly earnings, on a 12-month basis, are now down 3.0%.
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