United States: Inflation comes in at highest level since August 2008 in May
Consumer prices increased a seasonally-adjusted 0.64% over the previous month in May, moderating from the 0.77% rise recorded in April. The moderation was broad-based, with reduced price pressures recorded for housing, transportation, and food. In addition, prices for medical care dropped.
Inflation rose to 5.0% in May, following April’s 4.2% and well above the Federal Reserve’s 2.0% target. May’s reading was the highest inflation rate since August 2008. Meanwhile, the trend pointed up, with annual average inflation coming in at 1.9% in May (April: 1.5%). Lastly, core inflation rose to 3.8% in May, from April’s 3.0%.
Recent high inflation figures have been driven by a combination of government stimulus, an easing Covid-19 pandemic, higher commodity prices, the semiconductor shortage affecting car production, high domestic travel demand and a favorable base effect. Looking forward, our panelists see price pressures ebbing as some transient drivers fade and the base effect grows less favorable, but inflation will remain above-target this year nonetheless.
Commenting on inflationary pressures ahead, Leslie Preston, a senior economist at TD Economics, noted:
“How long will these elevated price increases go on? Over time supply is expected to adjust, but with pandemic-related supply shortages and constraints still in place the process could take some time. Even as some of these swings are transitory, measures that aren’t as affected by the pandemic are also seeing sturdy price gains.”