Inflation rose at its fastest pace in more than a decade last month, but CNBC’s Jim Cramer called it Wall Street’s worst secret and said the stock market took it calmly.
According to the Labor Department, the consumer price index, which measures the value of a basket of goods such as food and energy, rose 5% in May over the same period last year. While this is a high figure, it is only slightly above the expected 4.7% growth according to Dow Jones research.
“When everyone expects outrageous government statistics, then they’re not really outrageous when you get them,” he said in Mad Money. “So when the Labor Department this morning reported sharp inflation numbers … the market took it calmly.”
Inflation reached its highest rate since August 2008, but the S&P 500 rose 0.5% to a record close of 4,239.18.
The Dow Jones Industrial Average rose 0.1%, or 19.10 points, to 34,466.24, while the high-tech Nasdaq Composite closed at 14,020.33, down 0.8%. Both metrics are within 1% of their best closes.
Despite the rise in prices, the Federal Reserve is unlikely to change its stance on interest rates, Cramer said. Central bank officials plan to keep rates close to zero so that the US economy can recover from last year’s Covid-19 recession.
“There were too many mistakes in the past year and most of them will not be resolved by higher rates,” Kramer said. “Companies just weren’t ready to deal with such a strong economy, but this is a high quality problem and they don’t need a rate hike to solve this problem. Time will do it for them. “
Fed Chairman Jerome Powell said the central bank will allow inflation, which he believes will be temporary, to exceed its 2% target. The Fed said the federal funds rate, which affects lending, will not rise until the labor market fully recovers.
To achieve this, the country needs to restore more than 7 million jobs, with an unemployment rate of 5.8% last month.
“I think Jay Powell’s gradual approach is prudent. I bet he’ll be absolutely right, ”Kramer said.