US inflation accelerates as petrol and food prices climb

High inflation also poses a political risk for President Joe Biden and his Democratic Party heading into the mid-term elections in November.

US consumer prices accelerated in May as forecourt petrol prices hit a record high and the cost of food soared, leading to the largest annual increase in over 40 years, raising expectations for more US rate hikes through September to combat inflation.

The relentless price pressures are forcing Americans to change their spending habits and will certainly heighten fears of either an outright recession or a 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.

The US consumer price index increased 1% last month after gaining 0.3% in April.

Petrol prices rebounded by over 4% after falling by around 6% in April. Prices at the pump shot up in May, averaging around $4.37 per gallon, according to data from AAA. They were flirting with $5 per gallon on Friday, indicating that inflation would remain elevated in June. 

Food prices also jumped, as prices of dairy and related products rose by the largest gain since July 2007. The Ukraine war and China's zero Covid-19 policy, which dislocated supply chains, is also keeping prices strong.

The inflation report was published ahead of an anticipated second half-point rate hike from the US Federal Reserve next week. 

Reuters