Mohamed El-Erian says the U.S. is nearing a 'cost-of-living crisis' after more hot inflation data

Published Wed, May 11 202211:03 AM EDTUpdated Thu, May 12 20221:21 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Inflation has been running too hot for too long, pushing the U.S. economy closer to a "cost-of-living crisis," economist Mohamed El-Erian told CNBC on Wednesday. El-Erian, an advisor to financial services firm Allianz, made the comments shortly after the April consumer price index came in above Wall Street's expectations . Inflation is more widespread across parts of the economy, possibly reaching the point where it "becomes also a growth problem," El-Erian said in an interview on "Squawk Box." "Why? Affordability, the extent to which high prices destroy demand. It's just a matter of time before we're talking about a cost-of-living crisis." Consumer prices increased 8.3% from a year ago, according to the Bureau of Labor Statistics. While that's slightly below March's 8.5% figure, it is still near the hottest inflation levels since the early 1980s. El-Erian stressed the need to look at the so-called core CPI number, which removes volatile food and energy prices. That rose 6.2% from a year ago, worse than the Dow Jones estimate of a 6% increase. "Look at the composition of inflation that suggests there are many drivers now. This is no longer an issue about the Ukraine war. This is a broad-based inflation process that the [Federal Reserve] has fallen behind in a major way," said El-Erian, former co-CEO of investment giant Pimco. In recent months, the Fed has adopted a more aggressive policy approach in an attempt to rein in the inflationary pressures, which have been more persistent than the U.S central bank initially expected as the economy recovered from the coronavirus pandemic . El-Erian said he believes the Fed needs to be "more humble" about the risks facing the American economy at this point. "They can't take anything off the table," El-Erian said, referring to Fed Chair Jerome Powell's comments last week about raising interest rates by three-quarters of a percentage point at a single meeting. Powell indicated that was not being actively considered by the central bank's policymaking arm. Bond yields and stocks both rose in the aftermath of April's CPI report, though stocks were off earlier. The tech-focused Nasdaq Composite was down about 0.5%. Bitcoin also took a leg lower once the fresh inflation data was published, a sign investors wanted to dump risky assets. "For the markets, not only are we having to deal with interest rate risk and liquidity risk, which we've been dealing with for weeks now, we also have to worry about an even bigger Fed policy mistake, which means credit risk and market functioning risk are also in play," El-Erian said. "These [inflation] numbers are consequential, and the reaction of markets — being it stocks, bonds, bitcoin — is totally understandable."

Mohamed El-Erian

Scott Mlyn | CNBC

Inflation has been running too hot for too long, pushing the U.S. economy closer to a "cost-of-living crisis," economist Mohamed El-Erian told CNBC on Wednesday.