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Inflation surged 8.6% over the last year — fastest since 1981

U.S. inflation surging at fastest pace in 40 years
U.S. inflation surging at fastest pace in 40 years 02:59

Inflation accelerated across the U.S. in May, jumping to 8.6% — the steepest increase since 1981, according to new government data.

The jump in the Consumer Price Index, a broad basket of goods and services, was due mainly to price increases for fuel, food and housing, the Labor Department reported Friday. In April, the CPI rose at an 8.3% annual rate, defying hopes that inflation had peaked. Economists had forecast that the CPI rose 8.2% in May, according to FactSet. 

Core inflation, which strips out food and energy prices, increased 6% over the last year. Although that was down from 6.2% in April, Michael Pearce of Capital Economics said the latest inflation data offer little sign that inflation is ebbing. 

Still searching for a peak

The pickup in inflation last month punctured expectations that price increases would soon ease, giving some respite to consumers and businesses. But Russia's war in Ukraine has contributed to higher fuel prices, with gasoline prices hitting new records in May and June. Average gas prices have shot up 13 cents this week alone to a record-high $4.99 for a gallon of regular unleaded, up from $3.07 a year ago, according to AAA.

"So much for the idea that inflation has peaked," noted Greg McBride, chief financial analyst with Bankrate. "Consumer prices blew past expectations – and not in a good way – with the 8.6% annual increase the fastest in more than 40 years. Worse, the increases were nearly ubiquitous. Just no place to hide."

Stocks slumped after the government's inflation report as investors weighed whether the Federal Reserve will have to hike interest rates more sharply than expected. The U.S. central bank, which began tightening monetary policy in March, is expected to announce another half-point increase in its benchmark rate next week.

In late trading on Friday, the S&P 500 and Dow Jones Industrial Average were both down more than 2%, while the Nasdaq Composite sank 3%.

Prices remain elevated as the economy rebounds from the pandemic, which drove up demand for goods and services that businesses are struggling to meet. The May data suggests that inflation may not yet be close to peaking, some experts said.

"U.S. inflation sped up in May, with nearly every item zooming higher, and another big core jump suggests the peak might be some ways off," said Sal Guatieri, senior economist with BMO Capital Markets. "There's little respite from four-decade high inflation until energy and food costs simmer down and excess demand pressures abate in response to tighter monetary policy."

Food prices jump 10%

Costs for food jumped 10.1% from a year earlier, the CPI data shows. That's the fastest pace for food since 1981, noted Gargi Chaudhuri, head of iShares Investment Strategy Americas, in an email after the data was released.

Economist Betsey Stevenson on the labor market, inflation and economic recovery 06:07

"Notable food price increases include meats, poultry, fish and eggs prices rising by 14.2% year over year, milk prices rising by 15.9% year over year and coffee prices rising by 15.3% year over year," Chaudhuri said.

With prices shooting up for basics such as food, housing and gas, "any relief for household budgets remains elusive," noted Bankrate's McBride. 

Other items that have seen sharply higher prices over the last year, according to the May inflation data:

  • Fuel oil — 106.7%
  • Gasoline — 48.7%
  • Eggs — 32.2%
  • Natural gas — 30.2%
  • Used cars/trucks — 16.1%
  • Airfare — 12.6%
  • Fruit/vegetables — 8.2%

Fierce inflation is taking a heavy toll on consumer confidence. A University of Michigan index tracking confidence fell to a 50-year low in early June. 

"Overall, gas prices weighed heavily on consumers, which was no surprise given the 65 cent increase in national gas prices from last month," Joanne Hsu, director of the survey, said in a report. 

Although declining consumer confidence could dent economic growth, it could also help cool inflation by dampening demand for gas and other products.

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