Inflation surges to new 41-year high of 8.6%: Groceries jump 12% and gasoline soars 49% as rising prices batter consumers
- The consumer price index rose 8.6% on May from a year ago, the fastest increase since December 1981
- Increase was larger than economists expected and topped the recent peak set in March
- Soaring food and energy prices drove the increase, with groceries up 11.9% and gasoline rising 48.7%
- But core inflation, excluding food and energy, was also higher than expected at 6% annual rate
- It is the strongest signal yet that inflation has not yet peaked, as Biden previously claimed
- On Friday Biden plans to speak at the Port of Los Angeles to highlight supply chain initiatives
New data show that inflation in the US rose to 8.6 percent last month, surging to its highest level since 1981.
The Labor Department’s report on Friday showed that the consumer price index rose 1 percent in May from the prior month, for a 12-month increase of 8.6 percent.
The annual increase, driven by soaring food and energy prices, was hotter than economists had expected, and topped the recent peak of 8.5 percent set in March to reach a level not seen since December 1981.
The new figures suggested that the Federal Reserve could continue with its rapid interest rate hikes through September to combat inflation, and markets reacted swiftly, with the Dow shedding 300 points in the pre-market.
It marked the strongest signal yet that inflation has not yet peaked, as President Joe Biden previously claimed as far back as December.
Inflation has emerged as s key threat to Biden and congressional Democrats in the midterms, and on Friday Biden plans to speak at the Port of Los Angeles to highlight his efforts to relieve supply chain chaos that contributed to rising prices.
New data show that inflation in the US rose to 8.6 percent last month
Excluding volatile food and energy prices, so-called core inflation rose 0.6 percent in May, the same pace as April, for an annual gain of 6 percent.
But for American consumers, the rising prices of food and energy, particularly gasoline, are becoming an increasing household concern.
Gasoline prices shot up in May, averaging around $4.37 per gallon, according to data from AAA.
They were flirting with $5 per gallon on Friday, indicating that the monthly CPI would remain elevated in June.
Inflation was last month also boosted by higher prices for other goods like food, which has surged in the aftermath of Russia’s unprovoked war against Ukraine.
China’s zero COVID-19 policy, which dislocated supply chains, is also seen keeping goods prices strong.
Prices for services like rents, hotel accommodation and airline travel were also high last month. There had been hope that the shift in spending from goods to services would help to cool inflation.
Gasoline prices set another new record high on Thursday, averaging $4.97 per gallon
But a tight labor market is driving up wages, contributing to higher prices for services.
The inflation report was published ahead of an anticipated second 50 basis points rate hike from the Fed next Wednesday.
The U.S. central bank is expected to raise its policy interest rate by an additional half a percentage point in July. It has hiked the overnight rate by 75 basis points since March.
‘Continued strong monthly inflation could suggest the Fed more explicitly guides towards policy rates continuing to rise by 50 basis points or more until realized inflation data is convincingly slowing,’ said Veronica Clark, an economist at Citigroup in New York.
In the 12 months through May, the CPI increased 8.6% after rising 8.3% in April. Economists had hoped that the annual CPI rate peaked in April.
Underlying inflation was equally strong last month as rents and airline fares maintained their upward march.
Developing story, more to follow.