Consumer prices rose 4.2% in May from a year earlier. This was an increase from 3.8% in April.
That was the highest year-over-year reading since April 2023. It’s a sign that high energy costs stemming from the war with Iran continue to accelerate pricing pressures.
However the month-over-month rate cooled slightly compared to April. This is a sign that the sharp rise in energy prices may have peaked and begun to soften.
Core inflation, which excludes food and energy categories, rose 2.9% from a year earlier. That was in line with forecasts and was slightly hotter than 2.8% in the previous month.
The economy is facing overlapping inflationary shocks from tariffs, energy costs and the investment boom in artificial intelligence. Pain at the pump has forced many small businesses to raise their prices to maintain their margins.
Let me leave you with this…
Everyone is wondering what this will do to interest rates. Inflation is the main issue for the Fed as it gears up for its first meeting under new Chairman Kevin Warsh next week.
Today’s report marks yet another month in which the Fed has made no visible progress toward its 2% inflation goal. The debate ranges from holding rates steady for longer to whether a rate increase belongs back on the table.
Highlights of today’s report include..
1 – Average gasoline prices rose to a four-year high of $4.56 a gallon in late May, according to AAA, although they have since cooled to about $4.15.
2 – Airline tickets were up 2.7% from April.
3 – But prices for food, housing and clothing rose more slowly
4 – Other categories posted outright declines such as car insurance decreasing 1.7% in May from April, prescription drugs dropping 0.9% and new vehicle prices declining 0.3%.
One thing we all need to watch is how this affects our employees. Inflation-adjusted hourly earnings declined 0.7% year-over-year in May after dropping 0.3% in April.
That means that households’ purchasing power isn’t keeping up with increases in the cost of things like rent, groceries and gasoline. Be careful.
You don’t need to lose staff members as your competitors start poaching your best employees. A mid-year raise may become necessary, depending on how the rest of this year unfolds.
But most of all we need to be ultra-conservative in managing our businesses. Watch your financial statements like a hawk, trim any fat on your payrolls, and put new projects on hold.
Periods of pricing instability like this force many inexperienced business owners into bankruptcy. Manage your margins and raise your prices when necessary.
If your business has excess personnel, you’ll need to do what’s best for everyone. Running lean and mean is the only way in difficult economies.
Not knowing where the economy is headed and worrying about interest rates means this isn’t the time for new projects. You don’t want to be left without a chair if the music stops.
This isn’t fun, but it’s the job. It’s what you signed on for. This is Entrepreneuring 101. Leadership is about guiding your business through difficult times. Any idiot can do it in the easy times.
So dig your hole, shoulder your weapon, and get it done already. But do so knowing that you aren’t alone. I’m right there with you and am here when you need me.
If you need to talk, you know my number.
And if you’re having problems with your accounting and tax work, what are you waiting for? Contact us today.
We’re all going to get through this. Let’s get through it together…
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, Accounting and Tax Work, Tax Planning, or Tax Representation, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
www.SalarySolutions.net
www.AccountingSolutionsLtd.com
Disclaimer: The content on our website or newsletter is provided solely for general informational purposes and should not be construed as tax, accounting, legal, investment, or professional advice of any kind. Accessing this information does not create, and is not intended to create, an accountant-client relationship. This information may not reflect the most current tax laws, accounting standards, or regulatory developments and may not apply to your specific jurisdiction or circumstances. It is not a substitute for consulting qualified professionals. Before making any decisions or taking any actions, you should seek advice from a professional who is fully informed of all relevant facts pertaining to your situation.
Tax-related content on this site is not intended, nor may it be used by any taxpayer, to avoid penalties that may be imposed under applicable tax laws. To comply with IRS requirements, we inform you that any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties or promoting, marketing, or recommending any transaction or matter addressed herein.
All information is provided “as is,” without any guarantee of completeness, accuracy, or timeliness, and without any warranty, express or implied, including but not limited to warranties of performance, merchantability, or fitness for a particular purpose. We disclaim all liability for any loss or damage arising from reliance on this information.
Links to third-party websites are provided for convenience only; we do not endorse or assume responsibility for their content. All materials are the property of our firm and may not be reproduced without prior written consent.