Inflation unexpectedly hit a new 40-year high in May as gas, food and rent prices surged, underscoring that its anticipated decline could be painfully slow.
The consumer price index increased 8.6% annually, up from 8.3% the prior month and the largest rise since December 1981, the Labor Department said Friday.
On a monthly basis, consumer prices increased 1%, compared to a 0.3% rise the prior month.
After inflation eased off its recent four-decade high in April, economists thought it had begun a grindingly slow descent. May’s return to historic levels reveals just how intractable it has become as a broad range of goods and services rose sharply.
Gas prices rose 4.1% and 48.7% annually while grocery prices increased 1.4% and 11.9% over the past year. Russia’s war in Ukraine continued to curtail global supplies of oil, wheat, corn and other commodities and extend supply chain troubles.
Core prices, which exclude volatile food and energy items, increased 0.6% for the second straight month. That lowered the annual rise to 6% from 6.2% in April.
Rent climbed 0.6% last month and 5.2% over the past year. The sharp rise in home prices during the pandemic spurred owners to hike rents to maintain profits.
There is some good news in the report.
Consumer purchases have started shifting from goods to services, such as dining out and traveling, now that the pandemic is broadly easing.
Also, many port, factory and trucking employees are coming back to work and China is easing COVID-related lockdowns, mitigating the supply chain bottlenecks behind much of the inflation spike. And retailers that ordered too much inventory to cope with the supply snarls are heavily discounting some items.
As a result, prices of goods are rising more slowly or dipping in some cases as shoppers scale back their shopping binges. Americans spent lots of their federal stimulus money and COVID-related savings as they hunkered down at home during the pandemic. Last month, prices fell 0.2% for furniture, 0.7% for appliances and 4.1% for TVs.
But used car prices, which fell the prior two months after skyrocketing during the health crisis, jumped 1.8% and 16.1% annually. New car prices rose 1% and 12.6%. yearly.
But strong demand for travel and other leisure activities is pushing up a different set of prices. Air fares leaped 12.6% and are up 37.8% the past year. And hotel rates rose 0.9% and 19.3% annually.