U.S. consumer prices rose solidly in May, leading to the biggest annual increase in nearly 13 years as a reopening economy boosted demand for travel-related services, while a global semiconductor shortage drove up prices for used motor vehicles.
The pandemic’s easing grip on the economy was also underscored by other data on Thursday showing the number of Americans filing new claims for unemployment benefits fell last week to the lowest level in nearly 15 months.
Vaccinations against COVID-19, trillions of dollars from the government and record-low interest rates are whipping up demand, leaving companies scrambling for raw materials and labor. Very expensive used cars and trucks accounted for about one-third of the rise in consumer inflation last month, reflecting a global semiconductor shortage, which is undercutting auto production.
May’s inflation drivers appear to be temporary, fitting in with Federal Reserve Chair Jerome Powell’s repeated assertion that higher inflation will be transitory.
“Parts of the economy contributing the most to inflation in April and May are going through understandable short-term adjustments or merely reflating back to ‘normal’ levels,” said Chris Low, chief economist at FHN Financial in New York. “Areas not impacted by the pandemic are moderating the CPI rise. But this report confirms demand is exceeding supply.”
The consumer price index increased 0.6% last month after surging 0.8% in April, which was the largest gain since June 2009. Food prices rose 0.4%, but gasoline declined for a second straight month. In the 12 months through May, the CPI accelerated 5.0%. That was the biggest year-on-year increase since August 2008 and followed a 4.2% rise in April.
The jump partly reflected the dropping of last spring’s weak readings from the calculation. May was probably the peak in the CPI, with these so-called base effects expected to level off in June. Economists polled by Reuters had forecast the CPI rising 0.4% in May and vaulting 4.7% year-on-year.
Excluding the volatile food and energy components, the CPI increased 0.7% after soaring 0.9% in April. The co-called core CPI was boosted by a 7.3% rise in used cars and trucks prices. New vehicle prices also increased strongly.
With at least half of the adult U.S. population fully vaccinated against COVID-19, Americans are traveling.
Car rental prices increased 12.1% in May. The cost of airline tickets and hotel accommodation also rose.
Consumers paid more for motor vehicle insurance, furniture and bedding, rents as well as apparel. But they got some relief from healthcare costs, which dipped 0.1% as prices for prescription medication fell 0.3%.
The core CPI shot up 3.8% in the 12 months through May, the largest increase since June 1992. The Fed has signaled it could tolerate higher inflation for some time to offset years in which inflation was lodged below its 2% target, a flexible average.