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June 10, 2022 8:22 am

Soaring Gasoline, Food Prices Boost US Consumer Inflation in May

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avatar by Reuters and Algemeiner Staff

Shoppers are seen wearing masks while shopping at a Walmart store, in North Brunswick, New Jersey, U.S. July 20, 2020. Photo: REUTERS/Eduardo Munoz.

US consumer prices accelerated in May as gasoline prices hit a record high and the cost of services rose further, suggesting that the Federal Reserve could continue with its 50 basis points interest rate hikes through September to combat inflation.

The consumer price index (CPI) increased 1.0 percent last month after gaining 0.3 percent in April, the Labor Department said on Friday. Economists polled by Reuters had forecast the monthly CPI picking up 0.7 percent. Gasoline prices shot up in May, averaging around $4.37 per gallon, according to data from AAA.

They were flirting with $5 per gallon on Friday, indicating that the monthly CPI would remain elevated in June.

Inflation was last month also boosted by higher prices for other goods like food, which has surged in the aftermath of Russia’s unprovoked war against Ukraine. China’s zero COVID-19 policy, which dislocated supply chains, is also seen keeping goods prices strong.

Prices for services like rents, hotel accommodation and airline travel were also high last month. There had been hope that the shift in spending from goods to services would help to cool inflation. But a tight labor market is driving up wages, contributing to higher prices for services.

The inflation report was published ahead of an anticipated second 50 basis points rate hike from the Federal Reserve next Wednesday. The US central bank is expected to raise its policy interest rate by an additional half a percentage point in July. It has hiked the overnight rate by 75 basis points since March.

“Continued strong monthly inflation could suggest the Fed more explicitly guides towards policy rates continuing to rise by 50 basis points or more until realized inflation data is convincingly slowing,” said Veronica Clark, an economist at Citigroup in New York.

In the 12 months through May, the CPI increased 8.6 percent after rising 8.3 percent in April. Economists had hoped that the annual CPI rate peaked in April.

Underlying inflation was equally strong last month as rents and airline fares maintained their upward march.

Excluding the volatile food and energy components, the CPI climbed 0.6 percent after advancing by the same margin in April.

The so-called core CPI increased 6.0 percent in the 12-months through May. That followed a 6.2 percent rise in April. Inflation by all measures has far exceeded the Federal Reserve’s 2 percent target.

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