The cost of living surged and drove the pace of inflation to a 13-year high of 5%, reflecting a broad increase in prices. The upsurge in inflation is mostly tied to temporary shortages that will fade away as supply catches up to demand, the Fed says.
The numbers: The cost of living surged again in May and drove the pace of inflation to a 13-year high of 5%, reflecting a broad increase in prices confronting Americans as the economy recovers.
The rate of inflation over the past year escalated to 5% from 4.2% in the prior month. That put it at the highest level since 2008, when the cost of oil hit a record $150 a barrel.Another closely watched measure of inflation that omits volatile food and energy also shot up 0.7% in May. The 12-month rate climbed to 3.8% from 3%, a 29-year high.
The worry among some inflation watchers is that part of the increase will get embedded in wages and prices and become harder to eradicate. The Fed would have to raise interest rates sooner than it wants and risk short-circuiting the economy in a worst-case scenario.The debate will play out over the next year. For now, Wall Street isn’t worrying all that much.The cost of used vehicles, food, furniture, clothes, plane tickets, recreational goods, insurance and alcohol all rose.
Americans got a bit of relief from energy prices, but it probably won’t last long. Energy prices were flat largely because of a small decline in gasoline prices. Rents rose 0.2% in May — the largest increase in more than a year — to nudge the increase over the past year up to 1.8%. What they are saying? “Consumer spending is recovering faster than the economy’s productive capacity in some sectors, temporarily pushing inflation higher,” said senior economist Bill Adams of PNC Financial Services.
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