US inflation surges to new 41-year high of 8.6% as Consumer Price Index rises 1%
Inflation rises to new 41-year high of 8.6%: Groceries up 12% and gasoline soars 49% as rising prices hit consumers
New data shows that inflation in the US soared to 8.6 percent last month, its highest level since 1981.
The Labor Department’s report on Friday found that the consumer price index rose 1 percent in May from the previous month, up 8.6 percent in 12 months.
The annual increase, driven by rising food and energy prices, was higher than economists had expected, surpassing the recent peak of 8.5 percent recorded in March.
The new data suggested the Federal Reserve could continue its rapid rate hikes to fight inflation through September, and markets reacted quickly, with the Dow losing 300 points in the pre-market.
New data shows inflation in the US soared to 8.6 percent last month
Excluding volatile food and energy prices, so-called core inflation rose 0.6 percent in May, at the same pace as April, for a 6 percent annual increase.
But for American consumers, rising food and energy prices, especially gasoline, are becoming a growing problem for households.
Gasoline prices shot up in May, averaging around $4.37 a gallon, according to AAA data.
They flirted with $5 a gallon on Friday, signaling that the monthly CPI would remain high in June.
Inflation was also boosted last month by higher prices for other commodities, such as food, which have surged in the wake of Russia’s unprovoked war on Ukraine.
China’s zero-COVID-19 policy, which disrupted supply chains, is also keeping commodity prices high.
Prices for services such as rent, hotel accommodation and air travel were also high last month. It had been hoped that the shift in spending from goods to services would help cool inflation.
Gasoline prices hit another all-time high on Thursday, averaging $4.97 a gallon
But a tight labor market is pushing up wages and contributing to higher prices for services.
The inflation report was released ahead of an expected second rate hike of 50 basis points by the Fed next Wednesday.
The US central bank is expected to raise its key rate by another half a percentage point in July. It has raised overnight interest rates by 75 basis points since March.
“Continued strong monthly inflation could indicate that the Fed is more explicitly raising policy rates by 50 basis points or more until realized inflation data slows convincingly,” said Veronica Clark, an economist at Citigroup in New York.
In the 12 months to May, the CPI rose 8.6% after rising 8.3% in April. Economists had hoped the annual CPI rate would peak in April.
Underlying inflation was similarly strong last month as rental prices and airfares continued to rally.
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