Jim Cramer reacts to red-hot inflation number: 'The market took it in stride'

Inflation grew at the fastest rate in more than a decade last month, but CNBC’s Jim Cramer called it the worst kept secret on Wall Street and said the stock market took it in stride.

The consumer price index, which measures the cost of a basket of goods like food and energy, increased 5% year-over-year in May, according to the Labor Department. While high, that was just a bit above the 4.7% gain expected by a Dow Jones survey.

“When everyone expects an outrageous government statistic, then it isn’t actually outrageous when you get it,” he said on “Mad Money.” “So when the Labor Department reported a red-hot inflation number this morning … the market took it in stride.”

Inflation came in at the hottest rate since August 2008, yet the S&P 500 rose 0.5% to a record close of 4,239.18.

The Dow Jones Industrial Average inched up 0.1%, or 19.10 points, to 34,466.24 and the tech-heavy Nasdaq Composite ended at 14,020.33, a 0.8% gain. Both are within 1% of their best closes.

Despite rising prices, the Federal Reserve is unlikely to change its position on interest rates, Cramer said. Central bank officials plan to keep rates at near-zero levels to make room for the U.S. economy to rebound from last year’s Covid-19 downturn.

“There are too many things that went wrong last year, and most of them won’t be solved by higher rates,” Cramer said. “Businesses just weren’t prepared to handle such a strong economy, but that’s a high-quality problem and they don’t need a rate hike to work things out. Time will do it for them.”

Fed Chair Jerome Powell said the central bank would allow inflation, which he thinks will be transitory, to rise above its 2% target. The fed funds rate, which influences lending, won’t see a hike until the labor market bounces back in full, the Fed said.

The country has more than 7 million jobs to recover to meet that goal, with an unemployment rate or 5.8% last month.

“I think Jay Powell’s gradual approach is prudent. I’m betting he’s going to be dead right,” Cramer said.