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As rent, food, and gas prices soared, inflation unexpectedly reached a new 40 year high in May. This indicates that the anticipated fall could be slow.

According to the Labor Department, Friday’s 8.6% increase in the consumer price index was the highest since December 1981. Economists predicted that inflation would remain stable at 8.3%.

Consumer prices rose 1% in the past month, compared with a 0.3% increase in the previous month.

Economists believed that inflation had started a slow and steady decline after it fell from its four-decade-high in April. May’s sharp rise in inflation to historical levels shows just how difficult it has become.

Gregory Daco, chief economist of EY-Parthenon wrote that the inflation slowdown through the year-end would be “anything but steep” in a note to clients.

The prices of gasoline rose 4.1% and 48.7% each year, while grocery prices rose 1.4% & 11.9% respectively over the last year. Russia’s war against Ukraine continues to reduce global oil supplies, wheat and other commodities, and extend supply chain problems.

Prices for cakes, cookies, and cupcakes rose 3.1% last month and fish prices rose 2.2%. After a jump of 10.3% in April, egg prices rose 5% and chicken costs rose 3% for the second consecutive month. Both items were affected by a recent bird flu epidemic.

Core prices, which exclude volatile foods and energy items, rose 0.6% for the second consecutive month. This lowered the annual increase to 6%, from 6.2% in April.

Over the past year, rent rose by 0.6% and 5.2%. Due to the sharp rise in home prices that occurred during the pandemic, owners decided to increase rents in order to keep their profits.

This report supports the Federal Reserve’s plans for a half-point increase in its key interest rate at its next week meeting and its July gathering. It is part of an aggressive effort to curb inflation. This campaign led to a severe stock market sell-off, and drove mortgage rates significantly higher, which has dampened the housing market.

According to economist Ian Shepherdson, Pantheon Macroeconomics, “This report destroys any last vestiges for hope that the Fed might pivot to” a quarter-point hike in July.

Stocks fell after the release of the report. As of 10:15 AM, the Dow Jones Industrial Average had fallen by 787 points and the S&P 500 fell 104 points. This puts it in bear market territory. It is equivalent to a 20% drop since January’s all-time high.

Supply chain gridlock starts to ease

However, there are some positive news in the most recent numbers.

Now that the pandemic has largely subsided, consumer purchases have begun to shift from goods to services such as dining out or traveling.

Many trucking, port and factory workers are returning to work, and China is lifting COVID-related lockdowns. This will help reduce the supply chain bottlenecks that caused much of the inflation spike.

Retailers who order too many inventory to keep up with demand are selling some of their stock at a steep discount.

Prices of goods are falling or increasing slowly as consumers cut back on their panic-fueled shopping sprees. Prices fell 0.2% last month for furniture, 0.7% on appliances, and 4.1% on TVs.

However, used car prices rose 1.8% and 16.1% respectively in the past two months, after they had risen during the health crisis. Prices for new cars rose by 1% and 12.6% annually.

As the pandemic recedes, there is a strong demand for travel and leisure activities which drives up costs. The past year saw an increase of 12.6% in air fares and a 37.8% rise in hotel rates. Hotel rates rose by 0.9% and 19.3% each year.

Shepherdson believes that inflation is expected to fall this year as supply problems recede and wage growth continues its moderate pace, particularly in labor-intensive sectors like hairdressers and restaurants.

Speaking at the Port of Los Angeles on behalf of President Joe Biden said that inflation is a problem for American families.

Biden stated, “I understand Americans being anxious.” “And they are anxious for good reasons.”

He said that the market for jobs is strong, with a low unemployment rate and Americans carrying less debt. The federal deficit is expected to fall $1.7 trillion in the coming year.

He said that America can fight inflation because of this progress.