Consumer Price Index May 2022:

Inflation accelerated further in May, with prices rising 8.6% from a year earlier for the fastest increase since December 1981, the Bureau of Labor Statistics said Friday.

The consumer price index, a comprehensive measure of prices for goods and services, rose even more than the Dow Jones estimate of 8.3%. Excluding volatile food and energy prices, the so-called core CPI rose 6%, slightly above the 5.9% estimate.

On a monthly basis, core CPI was up 1%, while core was up 0.6%, compared with their respective estimates of 0.7% and 0.5%.

Rising prices for shelter, gasoline and food contributed to the increase.

Energy prices rose 3.9% from the previous month, bringing the annual gain to 34.6%. Within the category, fuel oil registered a monthly gain of 16.9%, raising the 12-month high to 106.7%.

Shelter costs, which account for about a third of the weight in the CPI, rose 0.6% on the month, the fastest one-month gain since March 2004. The 5.5% gain over 12 months is the biggest since February 1991.

Finally, food costs rose another 1.2% in May, bringing the year-over-year gain to 10.1%.

These rising prices meant that workers took another pay cut during the month. Real wages when accounting for inflation dropped 0.6% in April, although the average hourly wage rose 0.3%, according to a separate BLS statement. Over 12 months, average real hourly earnings dropped by 3%.

Markets reacted negatively to the report, with stock futures indicating a sharply lower open on Wall Street and government bond yields rising.

“It’s hard to look at inflation data for May and not be disappointed,” said Morning Consult chief economist John Leer. “We’re still not seeing any signs that we’re clean.”

Some of the biggest increases were in airline tickets (up 12.6% on the month), used cars and trucks (1.8%) and dairy (2.9%). Vehicle costs were considered an indicator of rising inflation and had been falling for the past three months, so the rise is a potentially ominous sign as used vehicle prices are up 16.1% from last year. New vehicle prices rose 1% in May.

Friday’s figures dampened hopes that inflation may have peaked and heightened fears that the US economy is approaching a recession.

The inflation report comes with the Federal Reserve in the early stages of a rate hike campaign to slow growth and bring prices down. The May report likely solidifies the likelihood of multiple interest rate hikes 50 basis points ahead.

“Obviously, nothing is good in this report,” said Julian Brigden, president of MI2 Partners, a global macroeconomic research firm. “There’s nothing there that gives the Fed any cheer. … I struggle to see how the Fed can pull back.”

With 75 basis points of interest rate hikes already under its belt, markets widely expect the Fed to continue tightening policy throughout the year and possibly into 2023. The central bank’s benchmark short-term lending rate is currently anchored. around 0.75% is expected to rise to 2.75%-3% by the end of the year, according to CME Group estimates.

Inflation has been a political headache for the White House and President Joe Biden.

Government officials place most of the blame for the rise in supply chain issues related to the Covid pandemic, imbalances created by disproportionate demand for goods over services and the Russian attack on Ukraine.

In a recent Wall Street Journal op-ed, Biden said he will push for more supply chain improvements and continue efforts to reduce the budget deficit.

However, he and Treasury Secretary Janet Yellen stressed that much of the responsibility for reducing inflation rests with the Fed. The government has largely denied that the trillions of dollars earmarked for Covid aid played a role.

It remains to be seen how much the central bank will have to raise rates. Former Treasury Secretary Larry Summers recently released a white paper with a team of other economists that suggests the Fed will need to go further than many are anticipating. The article claims that the current situation of inflation is closer to the situation of the 1980s than it appears because of the differences in the ways in which the CPI is calculated then and now.

Correction: Julian Brigden is president of MI2 Partners. An earlier version misspelled his name.

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