The Consumer Price Index picked up by 8.6 percent, as price increases climbed at the fastest pace in more than 40 years.
A surge in prices in May delivered a blow to President Biden and underscored the immense challenge facing the Federal Reserve as inflation, which many economists had expected to show signs of cooling, instead reaccelerated to climb at its fastest pace since late 1981. Consumer prices rose 8.6 percent from a year ago and 1 percent from April — a monthly increase that was more rapid than economists had predicted and about triple the previous pace. The pickup partly reflected surging gas costs, but after stripping out volatile food and fuel prices still climbed by 0.6 percent, a brisk monthly rate that matched April’s reading. Friday’s Consumer Price Index report offered more reason for worry than comfort for Fed officials, who are watching for signs that inflation is cooling on a monthly basis as they try to guide price increases back down to their goal. A broad array of products and services, including rents, gas, used cars and food, are becoming sharply more expensive, making this bout of inflation painful for consumers and suggesting that it might have staying power. Policymakers aim for 2 percent inflation over time using a different but related index, which is also elevated. The quick pace of inflation increases the odds that the Fed, which is already trying to cool the economy by raising borrowing costs, will have to move more aggressively and inflict some pain to temper consumer and business demand. The central bank is widely expected to raise rates by half a percentage point at its meeting next week and again in July. But Friday’s data prompted a number of economists to pencil in another big rate increase in September. A more active Fed would increase the chances of a marked pullback in growth or even a recession.
“It suggests that the Fed has more to do to bring down inflation,” Laura Rosner-Warburton, a senior economist at MacroPolicy Perspectives, said of the inflation data. “It was strong across the board, not concentrated, and higher than our expectation.”
Markets, nervous about the Fed’s policy path and the rising risk of a downturn, tumbled after the Labor Department released the report. The S&P 500 fell 2.9 percent. Yields on short-term government bonds, which serve as benchmarks for borrowing costs, rose sharply, with the rate on the two-year Treasury note hitting 3.06 percent, its highest level since 2008. High inflation and the Fed’s attempts to rein it in are contributing to a sour economic mood. Consumer confidence, which has been sinking since last year as households shoulder the burden of higher prices, plunged to a new low in a report out Friday. President Biden’s approval ratings have also suffered, and Wall Street economists and small business owners increasingly worry that a recession is possible in the next year. That glum attitude — and the fact that inflation shows little clear sign of waning — spell trouble for Mr. Biden and Democrats as November midterm elections approach. As climbing prices weigh on voters’ wallets and minds, policymakers across the administration have been clear that helping to return inflation to a more sustainable pace is their top priority, but that doing so mainly falls to the Fed.
