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June 10, 2022 10:47 AM, EDT

US Inflation Unexpectedly Accelerates to 40-Year High of 8.6%

InflationA shopper enters an H&M store. (Patrick T. Fallon/Bloomberg News)

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U.S. inflation hit a fresh 40-year high in May, unexpectedly accelerating in a broad advance that pressures the Federal Reserve to extend an aggressive series of interest-rate hikes and adds to political problems for the White House and Democrats.

The consumer price index increased 8.6% from a year earlier, Labor Department data showed June 10. The widely followed inflation gauge rose 1% from a month earlier, topping all estimates. Shelter, food and gas were the largest contributors.

The so-called core CPI, which strips out the more volatile food and energy components, rose 0.6% from the prior month and 6% from a year ago, also above forecasts.

The figures reinforce that inflation still is heated by many measures, and that the Fed — which has committed to half-point hikes at each of its next two meetings, starting next week — will have to maintain that aggressive stance through its September gathering. Record gasoline prices and geopolitical factors threaten to keep inflation high in the coming months, suggesting the Fed will have to pump the brakes on the economy for longer.

Treasury yields jumped, stock futures fell and the dollar rose after the report.

In May, prices for necessities continued to rise at double-digit paces. Energy prices climbed 34.6% from a year earlier, the most since 2005, including a nearly 49% jump in gasoline costs. Gas prices so far in June have climbed to new highs, signaling more upward pressure in coming CPI reports and therefore keeping the Fed in the hot seat.

Grocery prices rose 11.9% annually, the most since 1979, while electricity increased 12%, the most since August 2006. Rent of primary of residence climbed 5.2% from a year earlier, the most since 1987.

There are growing risks that price pressures in those categories will continue to build. Russia’s ongoing war in Ukraine, as well as stepped-up related sanctions; potential port disruption due to the upcoming West Coast dockworker contract expiration; COVID-related lockdowns in China and drought could contribute to higher prices for food and energy.

That likely spells further trouble for President Joe Biden, whose approval ratings have sunk to new lows ahead of midterm elections later this year. While the job market remains a bright spot, decades-high inflation is crippling confidence among the American people and largely outpacing wage gains.

With assistance from Sydney Maki, Reade Pickert, Augusta Saraiva, Chris Middleton and Sophie Caronello.

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