Inflation was up 8.6% over the past year, the federal government said Friday, leading to a sharp decline in stock markets Monday.
The S&P 500 closed down 151 points, or 3.88%, meaning it's down 21.3% since its high on Jan. 3. The Dow was down 876 points and the Nasdaq dropped 530 points .. U.S. consumer prices surged 8.6% year-over-year in May, to a fresh 40-year high, led by higher prices for energy, food and housing. For the first time in history, a gallon of regular gas now costs $5 on average nationwide, according to AAA, and experts predict gas prices could average $6 a gallon by August.
The worse-than-expected inflation report has investors raising their bets on more aggressive interest rate increases from the Federal Reserve, possibly as soon as the central bank's policy-setting meeting this week. The likelihood of a half point rate hike at the Fed's September meeting has now jumped to 50%, up from 25% before Friday's inflation report.
Inflation fears have sparked a broad-based selloff on Wall Street that has spread beyond stocks to the bond market and cryptocurrencies. Bitcoin, the biggest cryptocurrency, traded below $24,000, down nearly 14% in just 24 hours.