Prices paid by U.S. consumers rose more than expected in May, extending a months-long rise in inflation that risks consolidating as the economy strengthens.
The consumer price index rose 0.6% from the previous month after a 0.8% increase in April, the largest since 2009. Excluding volatile food and energy components, the so-called underlying CPI rose 0.7% more than expected. according to data from the Labor Department on Thursday.
Price pressures intensify
CORE and HEADLINE US inflation rose more than expected in May
Earnings were fairly broad and were driven by steady growth in the costs of used vehicles, home furnishings, airfares and locker room. The median forecast in a Bloomberg survey of economists called for gains of 0.5% in both the overall and core CPI.
Compared to the same month a year earlier, the CPI jumped 5%, the biggest annual gain since August 2008, although the figure remains distorted by the base effect. The comparison with the index depressed by the pandemic in May 2020 makes year-on-year inflation appear stronger.
The basic measure increased by 3.8% from 12 months ago, the highest since 1992.
However, underscoring the clear acceleration in inflation more recently, the CPI over the past three months has risen at an annualized rate of 6.9%, the fastest since 2008.
The yield on 10-year Treasuries rose after the report, touching 1.52%. The dollar changed little and stock futures were mixed.
Price pressures continue to mount across the economy as companies struggle to balance the avalanche of demand with shortages of materials and, in some cases, labor. Shipping bottlenecks, higher input costs, and rising wages are challenges for companies looking to protect profit margins.
Strong consumer spending on goods, partly driven by government stimulus, has led to an increase in the backlog of orders and a reduction in inventories. The lifting of pandemic restrictions, the increase in vaccines and a wave of social activity are translating into increased demand for services, another propellant of inflation.
The question facing economists and investors is whether these factors will have a temporary impact on inflation as the Federal Reserve expects or whether they will take root more in a context of massive support for fiscal and monetary policy.
Several companies have raised prices or announced plans to do so, including Chipotle Mexican Grill and Reynolds Consumer Products.
Although orders and delays at Hooker Furniture Corp. are high, “we are cautiously optimistic, considering industry-wide supply chain logistics and raw material shortages and inflation,” chief executive Jeremy Hoff said on the company’s June 4 earnings call. “We believe we have mitigated these dynamics as much as possible through surcharges and price increases.”
A 7.3% increase in the cost of used cars and trucks accounted for about a third of the increase in the overall CPI, while new vehicles increased more since 2009.