May consumer prices accelerated at the fastest pace in nearly 13 years as inflationary pressures continued to mount in the US economy, the Labor Department reported Thursday.
The consumer price index, which is a basket of food, energy, groceries, housing costs and sales across a range of goods, rose 5% year over year. Economists polled by Dow Jones had expected an increase of 4.7%.
The figure represented the largest increase in CPI since the 5.3% rise in August 2008, just before the financial crisis plunged the US into the worst recession since the Great Depression.
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While the inflation data is well above anything seen since the 2008-09 financial crisis, the Federal Reserve has largely rejected the numbers. Central bank officials believe the current surge is due to temporary factors that wear off over the course of the year and, based on comparisons with the same period last year, will look higher when much of economic activity remained constrained by pandemic precautions.
As a result, market participants generally do not expect the Fed to react to the latest figures when the monetary policy open market committee meets next week.
“The strength of the top-line indices has been mainly driven by categories that have been severely disrupted by COVID and remain under pressure from supply chain disruptions,” wrote Eric Wingorad, senior economist at Alliance Bernstein. “The more stubborn inflation categories – those that better capture the sustainable trend – are significantly more subdued. That means the details of today’s pressures continue to support the idea that the rise in inflation will be temporary, even if it is more intense than most forecasters (myself included) initially expected. “
Used car and truck prices continued to rise, increasing 7.3% month on month and 29.7% over the last 12 months. The new car index rose 1.6%, the largest increase in a single month since October 2009, and rose 3.3% over the twelve-month period, the highest increase since November 2011.
However, the energy index remained nearly unchanged for the month despite the huge spike in gasoline prices this year, while the food index repeated its 0.4% rise in April.
The gasoline index is up 56.2% over the past year, part of an overall 28.5% increase in energy over the reporting period. Food prices remained comparatively restrained with a plus of 2.2% for the 12-month period.
A separate measure that rules out volatile food and energy prices rose 3.8% from the Dow Jones estimate of 3.5% for so-called core inflation. That was the fastest pace since May 1992.
Another report released Thursday showed that unemployment claims for the week ended June 5 were 376,000. The estimate was 370,000. The total was still the lowest in the pandemic-era.
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However, investors continue to focus heavily on inflation, which hasn’t been a major threat to the US economy since the early 1980s.
On a monthly basis, the headline CPI rose 0.8% while the core CPI rose 0.7%. The estimate was 0.5% for both readings.
Markets largely shook off Thursday’s inflation report, with stock market futures showing a gain at the opening price, although government bond yields rose higher. The ten-year benchmark government bond was last traded at 1.52%.
Prices rose in a variety of sectors as the economy continued to recover from harsh restrictions imposed by government officials during the pandemic.
Household equipment and operations increased 1.3%, the largest month-over-month increase since January 1976. Air tickets continued to rise, increasing 7% over the month and 24% year over year as more passengers take to the air. Car and truck rentals, together with sales prices, rose 12.1% to 16.2% in April and 110% year-on-year.
Housing costs, which represent roughly a third of the CPI, increased 0.3% month-over-month and 2.2% year-over-year. Within this group, an index that includes hotel and motel costs rose 10% over the 12-month period.
Claims have hit a new low in the pandemic era
As inflation rose, weekly jobless claims continued to decline.
The total of 376,000 represents a decrease of 9,000 from the previous week and marks another low since March 14, 2020, which preceded an unemployment explosion the US had never seen.
Current claims fell significantly, dropping 258,000 to a new pandemic-era low of just under 3.5 million. At about the same time a year ago it was 18.9 million.
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The total number of beneficiaries across all federal programs decreased by 95,099 to 15.35 million, about halfway through the same point in 2020. Enrollment in pandemic-related programs continues to decline as the extended benefits expiration approaches in September and so many states cut their programs.
At the state level, Pennsylvania (-23,703) and California (-18,999) saw large declines.
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