US consumer price growth rose in May, accelerating by 1% as rising energy and services inflation boosted the urgency of Federal Reserve plans to tighten aggressive monetary policy.
The monthly rise in the consumer price index, published on Friday by the Bureau of Labor Statistics, was significantly higher than the 0.3% increase in April and above the expectations of economists of an increase of 0.7%.
The annual inflation rate rose to 8.6%, the highest level since December 1981.
Shares sold strong on Friday, with the S&P 500 down 2.7% at lunchtime in New York and the Nasdaq Composite up more than 3%. US government short-term bonds, which are the most sensitive to monetary policy changes, also sold strong. The two-year Treasury yield soared to 3%, the highest level since 2008.
After eliminating volatile items such as food and energy, the “core” CPI rose 0.6%, maintaining the same momentum as the previous month. Prices for other categories in May were 6% higher than at the same time last year.
Inflation of services, excluding energy costs, rose 0.6 percent during the month and rose 5.2 percent in the year.
“There is no denying that when you look at this report, inflationary pressures appear to be still high and there does not appear to be any immediate relief in sight,” said Barclays economist Pooja Sriram. The bank said on Friday that the Fed would raise rates by 0.75 percentage points at its policy meeting next week. Traders have valued this result with a 50 percent chance.
Monthly inflation is likely to remain high due to high energy costs, with domestic gasoline prices approaching $ 5 a gallon and a steady rise in service-related costs. such as those related to the travel industry. These gains have offset a moderation in the spending of certain goods.
Sriram said it was difficult to point to a maximum of 8.6%, and warned that a “change” in energy prices could bring the overall inflation rate to 8.8% in the coming months.
High inflation has become the biggest economic challenge for US President Joe Biden, whose efforts to create one of the fastest labor market recoveries in U.S. history have been overshadowed by tolls. that the rise in prices has meant in American households, with consumer sentiment falling to a record high. down in June. The University of Michigan survey also showed that five- to ten-year inflation expectations jumped 0.3 percentage points to 3.3%.
Biden tried to blame Russian President Vladimir Putin again on Friday, linking rising petrol prices to the Ukrainian war.
“Bomb prices are a big part of inflation, and the war in Ukraine is one of the main causes,” he said. He said fighting inflation was his administration’s top economic priority, but acknowledged that price pressures “did not go down as sharply and as quickly as we should see”.
According to the BLS, the “broad” increase was mainly driven by a 3.9% increase in energy prices and a 4.1% increase in gasoline prices. The latter have increased by almost 50 per cent compared to the same period last year.
Food prices rose another 1.2% during the month, a pace that has been maintained roughly since December. Over the past 12 months, the so-called home food index has risen by 12%, the largest increase since April 1979. Air fares continued to rise, rising 12.6% in May after a an increase of 18.6% the previous month.
Most worrying, according to some economists, was a 0.6 percent increase in housing costs, the largest monthly increase since March 2004, as rents continued to rise.
Following the data, the so-called equilibrium rates (measures of market inflation expectations in five to ten years) rose to the highest level since mid-May.
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The Fed has already pledged to move monetary policy “quickly” to a more “neutral” level that no longer stimulates the economy, but further proof that inflation is consolidating could further force policymakers to raise interest rates more strongly than financial markets expect.
The Fed is expected to implement another half-point rate hike at its meeting next week, after making the first since 2000 last month, with another adjustment of this magnitude likely in July.
Lael Brainard, the vice president, recently made it clear that the Fed could continue at half a point in September and would only consider returning to more typical quarter-point increases after a “slowdown” in monthly inflation impressions.
Some analysts have warned that the series of half-point rate hikes could extend even further beyond September.
“If these high impressions continue [as] we saw this month and what we expect to see in June, that makes a 50 basis point increase in November a clear possibility, “said Alan Detmeister, UBS economist and former Fed employee.
Additional report by Kate Duguid in New York