US inflation skyrockets, piling pressure on Biden

US inflation surged to a new four-decade high in May, defying hopes price pressures had peaked and deepening President Joe Biden’s political troubles as Americans struggle to meet the ever rising cost of essentials like food and gas.

Consumer prices in the world’s largest economy have soared by the fastest pace since 1981, with gas prices at the pump hitting new records daily amid the fallout from Russia’s attack on Ukraine as well as ongoing supply chain challenges due to the Covid-19 pandemic.

Biden, whose popularity has taken a hit as prices surge, has made fighting inflation his top domestic priority, but is finding he has few tools to directly impact prices.

The president has tried to hammer home his optimistic message about the economic progress in the wake of the pandemic, including rapid GDP growth and record job creation, while pressing Congress to take action to lower costs on specific products.

He is due to speak about the inflation challenge, and likely will renew his call to approve legislation to go after firms such as shipping companies that are taking advantage of limited competition to impose steep price hikes.

But the latest inflation data dealt a crushing blow to his efforts, as the consumer price index (CPI) jumped 8.6 per cent compared to May 2021, up from 8.3 per cent in the 12 months ending in April and topping what most economists thought was the peak of 8.5 per cent in March.

Prices continued to rise last month for a range of goods, including housing, groceries, airline fares and used and new vehicles, setting new records in multiple categories, according to the Labour Department report.

“The headline inflation numbers are dreadful. Strip away some special factors & they’re merely bad,” Harvard economist and former White House adviser Jason Furman said on Twitter.

Some economists expected the easing of pandemic restrictions to cause a shift of US consumer demand towards services and away from goods, which they said would ease inflation pressures, but prices for services increased as well.

And CPI rose one per cent compared to April, after the modest 0.3 per cent gain in the prior month, the Labour Department reported, far higher than expected by analysts who were looking for inflation pressures to ebb slightly.

Energy has soared 34.6 per cent over the past year, the fastest since September 2005, while food jumped 10.1 per cent — the first increase of more than 10 per cent since March 1981, the report said.

Fuel oil in particular more than doubled, jumping 106.7 per cent, the largest increase in the history of CPI, which dates to 1935, according to the report.

“The price of fuel oil and natural gas is working its way through the economy,” Biden economic adviser Brian Deese told CNBC. “The issue now is how can we actually make progress... that would improve that?”

The CPI surge “raises the probability of even more aggressive Fed rate hikes to tamp down on inflationary expectations,” said Mickey Levy of Berenberg Capital Markets, adding that a pause in rate hikes in September is “looking increasingly unlikely”