US consumer prices accelerated in May as petrol prices hit a record high and the cost of food soared, leading to the largest annual increase in nearly 40 and a half years, suggesting that the Federal Reserve could continue with its 50 basis points interest rate hikes through September to combat inflation.
The faster than expected increase in inflation last month reported by the Labor Department on Friday also reflected a surge in rents, which increased by the most since 1990.
The relentless price pressures in the US are forcing people to change their spending habits and will certainly heighten fears of either an outright recession or period of very slow growth.
High inflation also poses a political risk for President Joe Biden and his Democratic Party heading into the mid-term elections in November.
"There's little respite from four-decade high inflation until energy and food costs simmer down and excess demand pressures abate in response to tighter monetary policy," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
"The Fed might still raise policy rates 'just' 50 basis points next week but it could easily ratchet up the pace beyond then if inflation keeps surprising to the high side."
The consumer price index increased 1.0 per cent last month after gaining 0.3 per cent in April.
Petrol prices rebounded 4.1 per cent after falling 6.1 per cent in April.
Prices at the pump shot up in May, averaging about $US4.37 per gallon, according to data from AAA.
They were flirting with $US5 per gallon on Friday, indicating that the monthly CPI would remain elevated in June.
Food prices jumped 1.2 per cent.
Prices of dairy and related products rose 2.9 per cent, the largest gain since July 2007.
Food prices have soared following Russia's unprovoked war against Ukraine.
China's zero COVID-19 policy, which dislocated supply chains, is also expected to keep goods prices strong.
Economists polled by Reuters had forecast the monthly CPI picking up 0.7 per cent.
In the 12 months through May, the CPI increased 8.6 per cent.
That was the largest year-on-year increase since December 1981 and followed a 8.3 per cent advance in April.
Economists had hoped that the annual CPI rate peaked in April.
The inflation report was published ahead of an anticipated second 50 basis points rate hike from the Fed next Wednesday.
The US central bank is expected to raise its policy interest rate by an additional half a percentage point in July.
US stocks opened lower and the US dollar rose against a basket of currencies.