In a bitter reversal, inflation soared back again in May after prices for core goods like food and especially energy shot up. This development is certain to contribute to fears that the United States economy is inching closer to a recession and reinforce the Federal Reserve’s hawkish stance on raising interest rates.
On Friday, the Labor Department released its latest figures for the Consumer Price Index (CPI) and it showed inflation roared ahead by 8.6% in May. According to the agency, this is the highest leap in inflation since December 1981 and it is a turnaround from April when inflation dipped to 8.3% from 8.5% a month earlier.
Like in previous months, runaway energy prices have been the single biggest contributor to high inflation in the U.S. economy. The Labor Department’s energy index showed a 34.6% year-on-year increase in May, the largest hike on record since September 2005.
Gas prices, in particular, drove this increase with the monthly gas index rising 4.1% in May and going up by 48.7% in the last year. Meanwhile, the price of fuel oil rose by a staggering 106.7%, the highest increase since the Labor Department began tracking this data in 1935.
Food prices also rose sharply in May. The agency’s food index showed that prices increased by 10.1% on a year-by-year basis in May, the first increase over 10% since March 1981.
This inflation reading comes as discussions mount on whether the economy is on the brink of a recession. Prominent business leaders and executives have expressed concern that it is a matter of when this will occur than if it will. Firms for their part were battered by investors pulling back on stocks due to recession fears, sending the stock market into a prolonged period of volatility in May.
For the Federal Reserve, this reversal may signal that their past rate hikes in March and May have not been enough to curb inflation’s ascent. This may translate to more urgency for further rate hikes, something Fed Chairman Jerome Powell maintains the central bank is ready to do to restore price stability.