WASHINGTON—U.S. inflation in May rose 5 percent from a year ago, recording the biggest annual spike since 2008 as supply bottlenecks and surging household demand continue to push prices higher.
While transitory factors continue to lift prices, the economy sees more signs of continuing inflationary pressures, according to analysts, which may point to persistently high inflation.
The Labor Department announced that the consumer price index increased 0.6 percent in May on a monthly basis, just above the consensus forecast of 0.5 percent.
The rise in used car prices accounted for about a third of the increase in overall inflation. Prices for used cars and trucks jumped 7.3 percent in May, following a 10 percent increase in April, as global semiconductor shortages continue to affect new car production. This put “used car prices up at more than a 170 percent annualized pace over the past two months,” according to Morgan Stanley.
Airfares were also up 7 percent, and rental car prices jumped another 12 percent last month.
Food prices rose 0.4 percent and energy prices remained flat in May. Analysts, however, expect a further increase in food prices in the coming months.
Core inflation, which excludes the volatile food and energy components, is up 3.8 percent over the past year—the largest gain in 28 years.
The sharp jump in the year-over-year inflation number is partially due to the base effect, as the pandemic lockdowns and the plunging economy caused weak consumer inflation a year ago. The base effect is expected to level off in June.
In March, the central bank raised its inflation projection for 2021 to 2.4 percent, up from the 1.8 percent projected earlier. Fed officials have repeatedly said price increases are “transitory,” with the expectation that inflation will eventually return to the central bank’s 2 percent target.
Recent inflation data, however, may require the Fed to revisit its inflation forecasts.
BY EMEL AKAN
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