US inflation continues to rise faster than expected

The inflation rate is now 8.6 percent compared to the previous year. Experts had expected a significantly lower price increase.

The inflation rate in the US climbed to its highest level in more than 40 years in May. Consumer prices rose 8.6 percent year-on-year, the Department of Labor said in Washington on Friday.

This is the highest value since December 1981. Economists, on the other hand, had expected an unchanged inflation rate of 8.3 percent.

“We had bet that US inflation had already passed its upper turning point and were taught better today,” commented economist Dirk Chlench, economist at Landesbank Baden-Württemberg. “As expected, the biggest price drivers were once again fuel and food, but the price increases have been happening across the board for some time.”

Gasoline prices rise by almost 50 percent

Energy prices rose 34.6 percent year-on-year in May. This is the highest increase since 2005. Gasoline prices even increased by 49 percent. Food prices also rose significantly by 11.9 percent year-on-year.

This is the highest increase since 1979. Record high gasoline prices and geopolitical factors are likely to keep price pressures high going forward. The war in Ukraine and the lockdowns in China are causing ongoing supply chain problems.

Compared to the previous month, consumer prices rose by 1.0 percent in May. This was also more than expected. In April, prices were only up 0.3 percent on the previous month.

Core inflation weakens somewhat

Core consumer prices, which exclude volatile energy and food prices, rose 6.0 percent year-on-year. In the previous month, the rate was still 6.2 percent. However, economists had forecast a stronger slowdown to 5.9 percent.

The US dollar and capital market interest rates in the US rose as an initial reaction. The euro gave way significantly and fell to a daily low of 1.0521 dollars. The US currency also appreciated against other currencies. This suggests that the financial markets are expecting further and significant interest rate hikes by the US Federal Reserve. The stock markets therefore came under pressure.

The ECB will only hike interest rates in July

The Fed initiated the turnaround in interest rates in America at the beginning of May. It acted much faster than the European Central Bank (ECB), which is only planning to take this step in July.

“Inflation and interest rate expectations are supported again, especially since oil prices are still unexpectedly high and petrol prices have developed additional upward momentum in recent weeks,” commented Ralfcircul, analyst at Landesbank Hessen-Thüringen.

“The Fed will therefore feel confirmed in its intention to raise the key interest rate by 0.5 percentage points next week and to continue to take aggressive action against inflation in July,” expectscirculation.