Inflation Soared in May, Breaking Another 40 Year Record

With prices going up 1% in a single month, today’s Consumer Price Index report suggests that high inflation will last longer than once expected. Inflation approaching double digits will likely put pressure on the Federal Reserve to be more aggressive on rate hikes. 

Overall, prices soared 8.6 percent for the 12 months ending May, the largest 12-month increase since 1981. And core inflation (which excludes volatile food and gas prices) increased 0.6% month over month, same as  last month—and 6.0% compared to this time last year. 

In recent months, we’ve also seen durable goods inflation fall but core services inflation pick up. Since services make up a larger share of the economy and of the CPI, and since inflation has now broadened to uncomfortably high rates in almost every category, it is no longer predominantly a supply chain problem. 

Food and Gas Prices Are Still on the Rise

Below are a few highlights from today’s report.

  • Food prices saw double digit hikes, increasing at a 10.1% rate, the first increase of 10 percent or more since the period ending March 1981. Prices for both food at home and food away from home picked up significantly, to 11.9% and 7.4% respectively.
  • Despite easing the prior month, gas prices surged again, increasing 48.7% over the year. Since energy is a common input in every single industry, the impact of high energy prices on consumers is not limited to their vehicles’ gasoline consumption. 

Inflation Has Broadened and Increased for Services and Shelter

  • The services price index went up by 5.7% year over year. Since services account for about 60% of the consumer basket, recent price hikes in services weigh heavily on consumers.
  • Inflation is now broader than what many initially thought, and unlikely to fall simply with the resolution of international factors, such as the Ukraine war and China’s lockdowns.
  • The  largest price jumps were in shelter (5.5%) and used car prices (16.1%). The shelter index increased 0.6 percent in May, the largest monthly increase since March 2004. Under shelter, both rent (5.2%) and house prices (5.1%) went up around the same level, and have yet to slow down in response to interest rate hikes.
  • Airlines prices soared 12.6% in a single month, following an 18.6% increase in April. Even though their impact on overall inflation is not high, consumers are feeling the pinch as they try to book summer vacations following two years of staying home.


High Inflation Is Eroding Wage Growth. Real Wages Are Down 3.4% Compared to Last Year.

  • With inflation standing at 8.6%, real wages—income that employees get after inflation is taken into account—are 3.4% lower than last year.
  • A record-tight labor market is producing the highest nominal pay gains in decades, but U.S. workers are still seeing the purchasing power of their paychecks diminish. 


Wage-Price-Spiral: Are We There Yet? Not Yet

  • As of May 2022, both level and momentum of the Kansas FED labor market conditions indicator (LMCI)  stay on the positive side, suggesting that we are still not in a wage-price spiral, yet. 
  • However, the momentum of the LMCI is getting closer to the critical zero line, suggesting that we might be at the verge of wages starting to put upward pressure on already high price tags.

Written by

Sinem Buber is an economist at ZipRecruiter with a focus on US labor market insights and trends. Previously, she worked at ADP Research Institute where she published the ADP National Employment Report. She holds a PhD in Economics from The Graduate Center, CUNY.

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