US Inflation soars to 40-Year High

Consumer price index rose 8.6% in May annually, 1% from April


Shelter, food and gas were biggest contributors to advance

Jun 10, 2022 06:53 pm



US inflation hit a fresh 40-year high in May, unexpectedly accelerating in a broad advance that pressures the Federal Reserve to extend an aggressive series of interest-rate hikes and adds to political problems for the White House and Democrats.


The consumer price index increased 8.6% from a year earlier, Labor Department data showed Friday. The widely followed inflation gauge rose 1% from a month earlier, topping all estimates. Shelter, food and gas were the largest contributors.


The so-called core CPI, which strips out the more volatile food and energy components, rose 0.6% from the prior month and 6% from a year ago, also above forecasts.


The figures dash any hope that inflation had already peaked and was starting to simmer down. Record gasoline prices, paired with unrelenting food and shelter costs, are exerting strong pressure on Americans’ cost of living, suggesting the Fed will have to pump the brakes on the economy even harder. That raises the risk of a recession, which some economists already saw as likely next year.


Two-year Treasury yields jumped, stock futures fell and the dollar rose after the report. Traders fully priced in three 50-basis-point rate hikes over the Fed’s next three policy meetings in June, July and September.


In May, prices for necessities continued to rise at double-digit paces. Energy prices climbed 34.6% from a year earlier, the most since 2005, including a nearly 49% jump in gasoline costs. Gas prices so far in June have climbed to new highs, signaling more upward pressure in coming CPI reports and therefore keeping the Fed in the hot seat.


Grocery prices rose 11.9% annually, the most since 1979, while electricity increased 12%, the most since August 2006. Rent of primary of residence climbed 5.2% from a year earlier, the most since 1987.


There are growing risks that price pressures in those categories will continue to build. Russia’s ongoing war in Ukraine, as well as stepped-up related sanctions; potential port disruption due to the upcoming West Coast dockworker contract expiration; Covid-related lockdowns in China and drought and could all contribute to higher prices for food and energy.


That likely spells further trouble for President Joe Biden, whose approval ratings have sunk to new lows ahead of midterm elections later this year. While the job market remains a bright spot, decades-high inflation is crippling confidence among the American people and largely outpacing wage gains.


Inflation-adjusted average hourly earnings fell 3% in May from a year earlier, the biggest drop since April 2021 and the 14th straight decline, separate data showed Friday.