The rate of inflation has skyrocketed to its highest level in nearly three decades as the economy faces a surge in demand and shortages of labor and materials.
The consumer price index, which includes food, energy, groceries and housing costs, increased 5 percent from a year ago, the fastest pace since 2008, CNBC reported.
Economists interviewed by Dow Jones had predicted a gain of 4.7 percent.
The reading is the largest CPI gain since the 5.3 percent increase in August prior to the financial crisis that became the worst recession since the Great Depression.
The Federal Reserve has been largely dismissive of the numbers and officials have said the current rise is caused by temporary factors.
Market participants don’t expect the Fed to make any changes as a result of the recent numbers when the Federal Open Market Committee meets next week.
“The strength in the top line indices was driven largely by categories that have been heavily disrupted by COVID and remain under pressure from supply chain disruptions,” Eric Wingorad, senior economist at Alliance Bernstein, wrote.
“The more persistent categories of inflation — the ones that do a better job of capturing the sustainable trend — are significantly more subdued. That means that the details of today’s print continue to support the idea that the spike in inflation is transitory, even if it is more intense than most forecasters (myself included) would originally have anticipated.”
The core price index, which excludes food and energy, also rose 3.8 percent in May from a year before, the largest increase since June 1992, according to The Wall Street Journal.
Used car and truck prices jumped 7.3 percent and the indexes for furniture, airline fares and apparel also increased sharply.
The annual inflation measurement is facing a so-called “base effect” because it is being compared to figures from last year when the pandemic caused prices to fall.
There are other explanations for the higher prices. Rental car prices have jumped because companies sold their fleets when people were not traveling during the pandemic.
Airlines and hotels are also facing a bounceback as consumers start to travel again.
The cost of transportation, commodity and labor are all increasing at the same time and are expected to continue to rise over the rest of the year.
“The inflation pressure we’re seeing is significant,” General Mills Inc. chief executive Jeff Harmening said at a recent investor conference.
“It’s probably higher than we’ve seen in the last decade.”
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