US consumer inflation grows to 8.6% in May 2022

US inflation and what it means for India

by 5paisa Research Team Last Updated: Dec 11, 2022 - 09:02 pm 25.3k Views
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Let me start with a rhetorical question; why does US inflation really matter to India? This is something we need to understand before getting into the details of US consumer inflation.

5 reasons why it matters ?

1. Food inflation in the US is normally reflective of global supply chain shortfalls. While Indian agriculture may still be insular, high food inflation does normally lead to excess of food exports out of India.

2. Fuel inflation in the US is a lot more reflective of the long term trend since the US is one of the world’s largest producer and consumer of oil. Hence, the impact of oil inflation in India is likely to be a multiple of the US impact.

3. Thirdly, high inflation levels forces the Fed to get more hawkish and the RBI will have to follow suit. We already saw that in an unscheduled meeting by the RBI in May 2022 to raise rates by 40 bps followed by 50 bps in June.

4. Surge in US inflation may also force the Fed to hasten the process of winding down the bond book to bring inflation under control by tightening liquidity. That is likely to have a negative impact on the passive fund flows into Indian equity.

5. Lastly, inflation gives a good basis to compare the real rates of interest in the US and in India and that shows that India seems to have an advantage. US inflation is higher than India but rates are lower. That is why debt outflows from India are still subdued.

Having understood the relevance of US inflation in the Indian macro context, let us look at the US May inflation in greater detail.

US inflation comes in higher at 8.6% for May 2022

OK, here is a small clarification. The Fed does not rely on this Consumer Inflation for its rate policy. That is determined based on Private Consumption Expenditure (PCE) inflation which is normally announced towards the end of each month. However, the consumer inflation does set the tone for the level of prices in the US economy. Here is how it panned out.

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For the month of May 2022, the consumer inflation came in 30 basis points above the consensus estimate of 8.3%. if you look at the last 3 months, the consumer inflation in the US was 7.9% in February, 8.5% in March and 8.3% in April 2022. The May 2022 inflation at 8.6% is the highest level of inflation seen in the US since December 1981.

US consumer inflation basket - May 2022

Broadly, the US consumer inflation basket is dividend into 3 sub-headers viz. Food inflation, Energy inflation and Core inflation. The table captures the gist of the inflation basket.


May 2022 (YOY)


May 2022 (YOY)

Food Inflation


Core Inflation


Food at home


Commodities less food and energy


Cereals and bakery products




Meats, poultry, fish, and eggs


New vehicles


Dairy and related products


Used cars and trucks


Fruits and vegetables


Medical care commodities


Non-alcoholic beverages


Alcoholic beverages


Other food at home


Tobacco and smoking products


Food away from home


Services less energy services


Full service meals and snacks




Limited service meals and snacks


Rent of primary residence


Energy Inflation


Owners’ equivalent rent


Energy commodities


Medical Care Services


Fuel oil


Physician Services


Gasoline (all types)


Hospital Services


Energy services


Transport Services




Motor vehicle Maintenance


Natural gas (piped)


Motor vehicle insurance


Headline Consumer Inflation


Airline Fare


Data Source: US Bureau of Labour Statistics

Three trends emerge from the table above. Core inflation is marginally lower at 6%, compared to the previous month. Fuel inflation continues to be elevated and that can be largely attributed to the higher prices of crude oil, natural gas as well as electricity.

This has been a major driver of high inflation in the US in the last 6 months. Finally, the real crux of the problem is the food inflation which is spiralling out of control to a 16 year high at 10.10%. This contributes most of the incremental impact on inflation.

We get back to the India implications

The bad news is that US inflation is almost out of control and the only solution is adopt the Volcker kind of approach. The Fed will have to tighten much faster than originally expected as inflation is just not getting regulated.

On the positive side, the RBI has already pre-empted monetary divergence risk by hiking repo rates by a total of 90 bps in the last 1 months. It hiked by 40 bps in May 2022 and another 50 bps in June 2022. 

In the realm of macro policy, there is normally a huge gap between precept and practice. While India is preparing for the worst of global macros, it is still not clear if the US Fed would really act as hawkish as it claims to become.

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