Consumer prices roared higher last month, rising at their fastest pace in decades.
Stripping out food and energy costs, which tend to be more volatile, inflation stood at 3.8% over that 12- month period. It was the biggest increase in so-called core inflation since June 1992.
In the month of May alone, prices rose 0.6% on a seasonally adjusted basis, slightly less than in April. Core inflation, excluding food and energy prices, stood at 0.7%, down from 0.9% in April.
Although May's price increases came at a faster pace than economists had predicted, they weren't entirely surprising, according to Cailin Birch, global economist at The Economist Intelligence Unit.
"The consumer price index hit its lowest point during the coronavirus crisis in the same month last year. This, combined with strong recent price growth in some specific areas, meant that the year-on-year inflation figure was inevitably going to be big," she said in emailed comments.
She expects inflation to ease back into the 2% to 3% range in the second half of the year.
But supply chain issues and heightened demand continue to lift prices higher. For example, prices for used cars and trucks rose sharply once again, increasing 7.3% in May and accounting for a third of of the overall May jump. Over the past 12 months, price tags went up 29.7% without seasonal adjustments.
The used car market is on fire because of a perfect storm of low interest rates, a limited supply of rental cars, a global chip shortage and people returning to work who don't want to take public transit because of the pandemic. New car prices also rose in May, ticking up 1.6%.
Even though the May increase to the price index was driven by only a few categories, inflationary pressures are visible all over the report.
For example, household furnishings, airline fares and apparel costs rose rapidly. Furnishings logged their largest monthly increase since January 1976.
Americans are continuing their return to restaurants as the economy reopens. Prices in the "food away from home" category rose 0.6%, the fastest pace since September. Restaurant prices are rising as companies pay their workers more as an incentive to bring them back to work. Even though millions of people remain unemployed as a result of the pandemic, businesses are reporting challenges finding qualified staff. Various companies have announced higher minimum wages to attract workers.
"Severe labor shortages (and resulting upward pressure on wages) in the leisure & hospitality sector are now feeding through," wrote Andrew Hunter, senior US economist at Capital Economics.
Economists worry that if prices keep rising at such steep rates, consumers will stop buying. That would be very bad news for the US economy as it runs on consumer spending.
Energy prices — which contributed a lot to prior months' increases — were flat in May with gasoline prices falling and other energy items rising.
The stock market seemed to largely ignore Thursday's report, even though investors have been worried about elevated inflation for months. The fear is that the price spikes could force the Federal Reserve to rethink its accommodative monetary policy stance sooner than hoped.