The latest figures from the Consumer Price Index (CPI) show that the cost of living has risen by one percentage point since April and was broad-based, with indices for housing, petrol and food being the largest contributors. Gas prices have soared in the US, approaching $ 5 a gallon this week – $ 1.90 more than a year ago. According to the latest CPI report, the energy index increased by 3.9% during the month, with the gasoline index rising by 4.1%. Other indicators of significant components also increased. The food index rose 1.2% in May as the home food index rose 1.4%. The rise in May was due to sharp increases in energy costs, which increased by 34.6% compared to the previous year, and groceries, which increased by 11.9% on an annual basis. Food and energy prices are more volatile than other categories included in the CPI, and the Labor Department publishes an “essential prices” index that excludes them. It strengthened 0.6% since April. The news led the stock markets to turmoil. The S&P 500 and Dow fell more than 2% and the technology Nasdaq fell more than 3.5%. Inflation fears have also hit Joe Biden’s poll numbers, and his government has blamed Russia’s invasion of Ukraine for rising prices. The war in Ukraine and the continuing cessation of world trade caused by the coronavirus pandemic have contributed to rising food and energy prices. But there were worrying signs that inflation was spreading. Housing costs increased by 5.5% compared to a year ago. After three months of falling, prices for used cars and trucks rose 1.8% in May from April to 16.1% year-on-year. Annual inflation was higher than the 8.3% increase in April and higher than economists had expected. Inflation is now running at a rate last seen in December 1981. The US Federal Reserve is meeting next week and is expected to raise interest rates again as it struggles to curb rising prices. Last month, the Fed announced the biggest rate hike since 2000, raising interest rates by 0.5 percentage points, and economists speculate that the Fed may move to speed up growth. “What a bad print of the CPI,” said Seema Shah, chief strategist at Principal Global Investors. “Not only was it higher than expected on almost all fronts, but the pressures were clearly evident in the more sticky parts of the market. The fall in inflation – whenever it finally happens – will be painfully slow. The Fed’s determination on price stability will really be tested now. “Policy rate hikes should be relentlessly aggressive until inflation finally begins to weaken, even if the economy is struggling.”
