Consumer prices growth spiked in May as another surge in oil prices spurred inflation higher across the U.S. economy, according to data released Friday by the Labor Department.
The Labor Department’s consumer price index (CPI), a closely watched gauge of inflation, rose 1 percent last in May alone and 8.6 percent in the 12-month stretch ending in May. Inflation landed far higher than the 0.7 percent monthly inflation rate projected by economists and jumped rapidly from a 0.3 percent monthly increase in prices in April.
The annual inflation rate also rose from 8.3 percent in April, where economists expected it to remain last month, to 8.6 percent. May’s annual inflation marked the fastest yearly growth in prices since inflation hit 8.9 percent annually in December 1981.
“Inflation is hitting not only the volatile food and energy categories, which themselves look to persist at high levels, especially food, but has moved deeply into services and shelter costs, while remaining high in goods categories we thought were cooling off,” said Robert Frick, chief corporate economist at Navy Federal Credit Union, in a Friday analysis.
Rising prices for shelter, gasoline, and food powered most of the May spike in inflation, particularly after a brief dip in oil prices eased some pressure in April. Energy prices rose 3.9 percent last month alone after falling 2.7 percent in April, with gasoline prices rising 4.1 percent in May. Gasoline prices are now almost 50 percent higher than they were in May 2021.
Food prices also rose a torrid pace, rising 1.2 percent last month alone and 10.1 percent over the past year—the fastest annual pace since March 1981. Inflation for groceries rose even higher as prices climbed 1.4 percent in May and 12.3 percent over the past year, marking the steepest annual rise in grocery prices since April 1979.
Much of the May rise in food and energy prices is attributable to the war in Ukraine, which has severely limited the global supply of oil, wheat and other crucial commodities. A sharp rise in summer travel and general energy usage during hot weather also pushed energy prices higher.
“We had expected energy prices to be a major contributor to inflation in May. After having dipped in April, global prices of oil and other energy commodities resumed their march upwards as a result of Russia’s invasion of Ukraine and tighter supplies elsewhere,” said Cailin Birch, global economist at the Economic Intelligence Unit, in a Friday analysis.
But inflation without food and energy—what economists call “core inflation”—still hit 0.6 percent in May and 6 percent over the past 12 months.
The May inflation spike is a troubling sign for the U.S. economy as policymakers scramble to slow price growth without causing a deep economic downturn. Rising prices have driven President Biden’s approval rating to new lows as Democrats prepare to defend their House and Senate majorities in the upcoming November elections.
High prices for food and gas in particular weigh heavily on household budgets and consumer confidence in the economy.
Spiking inflation also means the Federal Reserve will face even greater pressure hike interest rates at an even faster pace than they have already set.
The Fed has already raised its baseline interest rate range by 0.75 percentage points since March and is expected to boost rates another 0.5 percentage points—or 50 basis points—at each of its next two policy meetings.
As the Fed raises interest rates, consumers and businesses tend to pull back on spending to cover the higher costs of borrowing money. While the Fed hopes to slow spending enough to bring inflation down gradually, economists fear inflation may be rising too quickly for the central bank to control without serious consequences.
“Whether this translates to more aggressive hikes this summer, or a continuation of 50 basis point hikes this fall is the option for the Fed, but the overall reality for the Fed is that inflation is not under control, and they have their work cut out for them in the coming months,” said Charlie Ripley, senior investment strategist for Allianz Investment Management, in a Friday email.
Updated at 9:53 a.m.