US CPI inflation rises to 8.6% in May, beating estimates

  • The Consumer Price Index rose 8.6% in the year through May, according to data released on Friday.
  • This is the highest rate of inflation since December 1981.
  • The May report shows inflation rebounding as gas prices hit record highs.

Inflation rose last month as rising gas costs outstripped efforts by the Federal Reserve to slow price growth.

The Consumer Price Index – a closely watched indicator of inflation – rose 8.6% in the year to May, the Bureau of Labor Statistics said Friday morning, marking the highest reading since December 1981. Economists polled by Bloomberg expected the one-year rate to reach 8.3. % throughout the month.

The print reverses the slowdown observed through April and suggests that inflationary pressures are still running rampant in the US economy. Many economists had expected March to represent the peak of inflation after April’s decline. That optimism has now been replaced by concern that inflation will remain stable at unhealthy levels.

A month-on-month CPI reading showed that prices for goods and services rose by 1.0% last month. That’s up from April’s 0.3% increase and above the median estimate of a 0.7% gain. The one-month indicator is generally seen as a more telling sign of underlying inflation dynamics as it is not skewed by the way prices were changing in the previous year period. The one-month acceleration in inflation suggests that pressures have intensified throughout May and that it may prove more difficult to slow down price growth than previously anticipated.

Last month, energy prices rebounded after showing some signs of cooling off in April. A wide gap between Americans’ demand for gasoline and general supply pushed the average price per gallon of gasoline to an all-time high of $4.62 by the end of May. Coal and natural gas prices have also soared, leaving Americans with more expensive utilities and manufacturers with higher input costs.

Friday’s report confirmed that energy led the way in raising inflation. Category prices rose 3.9% in the month, recovering from the 2.7% drop observed until April. Fuel oil posted the biggest one-month increase of 16.9%, while gasoline prices rose 4.1% and utility gas prices rose 8%. Energy costs are now nearly 35% higher than last year’s levels.

Inflation through May was also broad, with few categories showing price drops. This broad inflation is generally considered to be more concerning as it suggests that inflation has evolved from a sector-specific issue to an economy-wide trend.

Core inflation, which excludes volatile food and energy prices, also surprised positively. The measure rose 0.6% on a one-month basis and hit an annual rate of 6%, slightly beating forecasts for earnings of 0.5% and 5.9%, respectively.

This rapid price growth only consolidates the Fed’s shift towards a more aggressive strategy to fight inflation. The central bank raised its benchmark interest rate by half a percentage point on May 4, marking its second rate hike since the pandemic crash and the first double increase since 2000. Half-point increases are likely “on the table” for meetings. of the June and July Fed. Still, rate hikes typically take several months to have a noticeable effect on the economy, and the effects of the May rise won’t show up in year-over-year inflation for some time.

“Any hope that the Fed can ease the pace of rate hikes after the June and July meetings now appears to be a long shot,” said Greg McBride, chief financial analyst at Bankrate.

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