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U.S. consumer prices rose the most in nearly 13 years in May compared to a year ago, as inflationary pressures continued to rise in the world’s largest economy.
The Office of Labor Statistics ‘jump in the consumer price index (CPI) exceeded economists’ forecasts, fueling intense debate over the extent to which the US economy is in danger of overheating due to a mixture of growing supply and demand constraints.
The CPI was 5% higher last month compared to May 2020, an acceleration compared to the annual growth rate of 4.2% in April and its fastest pace since it touched 5.4% in August 2008.
The core CPI, the underlying measure of inflation that eliminates volatile items such as food and energy, rose 3.8% in May annually, the highest since 1992, after a 3% increase in April.
The data was released as the Federal Reserve prepares to open a debate on the slowdown in asset purchases set to support the economic recovery, although the view of most central bank officials is that the rising inflation will be transitory.
Senior officials in the Biden administration, which is trying to convince Congress to spend more than $ 4 billion in additional spending over the next decade, believe higher inflation is expected over the next year as the economy will recover, but it will not escape control.
The rise in prices is due in part to the statistical impact of comparing this year’s increases with the low levels of inflation at the start of the coronavirus pandemic. Beyond that, Thursday’s report showed broad price increases, driven by rising cost of flights, furniture and home operations, new cars, rental cars and clothing.
The used vehicle and truck index rose 7.3% in May, accounting for about a third of the CPI increase. Used car prices they have jumped amid a shortage of semiconductors that affected vehicle production.
“We believe this will be the peak of the annual inflation rate, as strong base effects will subside in the coming months,” said Kathy Bostjancic, a US financial economist at Oxford Economics.
However, he warned that price increases related to the reopening and bottlenecks in the supply chain would keep inflation “high and sticky, as imbalances between supply and demand are only gradually resolved.” .
Monthly, consumer prices rose 0.6%, following a 0.8% rise in April. The core CPI rose 0.7% month-on-month.
Federal Reserve policymakers have been more tolerant of inflation, in part because consumer prices have been subdued for a long time despite weak monetary policy.
Minutes from the central bank’s monetary policy meeting in April showed that officials maintained a relatively bloody approach to inflation, but are willing to discuss the first steps to reduce the massive amount of monetary support to the economy introduced during the pandemic . In particular, they are expected to address how and when they could start cutting the $ 120 billion in monthly debt purchases that began last year.
“We believe policymakers see starting narrow debates sooner rather than later as a way to safeguard inflation expectations against a possible build-up of surprises in the coming months,” Krishna Guha and Peter Williams wrote on Thursday. of Evercore ISI.
Some economists and many Republican lawmakers argue that the Fed has underestimated the risk of higher inflation.
“Fears of inflation are a bit like the pain of phantom limbs, as they really cut through the problem, but it still hurts, and it hurts because the fear is remembered, even if the limb is gone.” , said James Sweeney, chief economist at Credit Suisse.
Larry Summers, the former U.S. Treasury Secretary who has become a vocal critic of U.S. fiscal and monetary policies, raised alarms after the data was released Thursday.
“If there is overheating in the United States and there is a possible rise in interest rates driven by the Fed or the markets, there will be huge risks to an already fragile global economy with excessive leverage,” Summers said.
The market reaction to the data slowed. Ten-year U.S. Treasury yields initially rose after the data, but at noon fell 0.018 percentage points to 1.470 percent. US stocks were positive, with the S&P 500 and Nasdaq up 0.5 and 0.67% respectively.
Anu Gaggar, senior global investment analyst at Commonwealth Financial Network.
Additional reports by Naomi Rovnick and Joe Rennison in London
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