Inflation in May accelerated again, with prices rising another 8.6 percent from a year earlier, the most rapid increase since December 1981, the Bureau of Labor Statistics reported Friday.
The Consumer Price Index, a broad measure of prices for goods and services, increased more than the estimate of 8.3 percent by the Dow Jones. When excluding volatile food and energy prices, the so-called core CPI rose 6 percent, up slightly from the estimate of 5.9 percent.
The total CPI rose 1 percent on a monthly basis, while the core CPI increased 0.6 percent, as opposed to estimates of 0.7 percent and 0.5 percent, respectively.
The increase was driven by soaring prices for housing, gasoline, and food.
As a whole, energy prices rose 3.9 percent from the previous month, bringing the annual gain to 34.6 percent. Within this category, fuel oil posted a monthly gain of 16.9 percent, bringing the 12-month increase to 106.7 percent.
Housing costs, representing about one-third of the CPI weight, increased 0.6 percent for the month, which was the fastest one-month gain since March 2004. The 12-month gain of 5.5 percent was the largest since February 1991, per report.
And finally, food prices increased another 1.2 percent in May, raising the year-over-year gain to 10.1 percent.
This jump in prices resulted in a fresh reduction in workers’ wages during the month. Actual inflation-adjusted wages fell 0.6 percent in April, even though the average hourly wage rose by 0.3 percent, according to a separate BLS release. The real average hourly earnings were down 3 percent over a year.
We saw some of the largest increases in airfares (up 12.6 percent on the month), used cars and trucks (up 1.8 percent), and dairy products (up 2.9 percent). The costs of vehicles had been regarded as an indicator of the inflationary surge and had been declining over the past three months. Therefore, the current increase represents a potentially worrisome sign, as prices for used vehicles have now risen 16.1 percent over the past year. Prices for new vehicles rose 1 percent in May.
The numbers on Friday have shattered hopes that inflation has reached a peak and further add to concerns that the U.S. economy may be nearing a recession.
Inflation has been something of a conundrum politically for the White House and President Joe Biden.
Administration officials have been primarily blaming the spike in the supply chain on problems related to the Covid pandemic, the imbalances that have been created by an inordinate demand for goods relative to services, and the Russian offensive against Ukraine.
The question remains as to how much the central bank will have to raise rates. Former Treasury Secretary Larry Summers has recently published a whitepaper with a team of other economists suggesting that the Fed will have to do more than many people expect. The paper asserts that the present inflation situation is much closer to the situation in the 1980s than it seems because of the ways in which the CPI was calculated then and now.