Inflation accelerated in May to the fastest pace in 41 years

• The Consumer Price Index rose 8.6% in the year through May, according to data out Friday.
• That's the highest inflation rate since December 1981.

Inflation swung higher last month as surging gas costs overpowered the Federal Reserve's efforts to slow price growth.

The Consumer Price Index — a closely watched inflation gauge — rose 8.6% in the year through May, the Bureau of Labor Statistics said Friday morning, marking the highest read since December 1981. Economists surveyed by Bloomberg expected the one-year rate to hit 8.3% through the month.

The print reverses the slowdown seen through April and suggests inflationary pressures are still running rampant through the US economy. Many economists had hoped March would represent peak inflation after the April decline. That optimism has now been replaced with concern that inflation will hold steady at unhealthy levels.

The month-over-month CPI reading showed prices for goods and services climbing 1.0% last month. That's up from April's 0.3% uptick and above the average estimate of a 0.7% gain. The one-month gauge is usually viewed as a more telling sign of underlying inflation dynamics, as it isn't skewed by how prices were changing in the year-ago period. The acceleration in one-month inflation hints pressures intensified through May and that it could be harder to slow price growth than previously anticipated.

Last month saw energy prices rebound after showing some signs of a cooldown in April. A wide gap between Americans' demand for gasoline and overall supply lifted the average price per gallon of gas to an all-time high of $4.62 by the end of May. Prices for coal and natural gas also soared, leaving Americans with more expensive utilities and manufacturers with higher input costs.

The Friday report confirmed energy led the way in pushing inflation higher. Prices in the category rose 3.9% through the month, rebounding from the 2.7% decline seen through April. Fuel oil posted the largest one-month increase of 16.9%, while gasoline prices rose 4.1% and utility gas prices gained 8%. Energy costs now sit nearly 35% higher than year-ago levels.

Inflation through May was also broad-based, with few categories showing price declines. Such sweeping inflation is generally regarded as more worrying, as it hints that inflation has evolved from a sector-specific issue to an economy-wide trend.

Core inflation, which strips out volatile food and energy prices, also surprised to the upside. The measure rose 0.6% on a one-month basis and hit a year-over-year rate of 6%, slightly exceeding forecasts of 0.5% and 5.9% gains, respectively.

Such fast price growth only cements the Fed's shift toward a more aggressive inflation-fighting strategy. The central bank raised its benchmark interest rate by half of a percentage point on May 4, marking its second rate hike since the pandemic crash and the first double-sized hike since 2000. Chair Jerome Powell hinted in a follow-up press conference that additional half-point increases are likely "on the table" for the Fed's June and July meetings. Still, rate hikes typically take several months to have a discernible effect on the economy, and the effects of the May hike won't show up in year-over-year inflation for some time.

"Any hopes that the Fed can ease up on the pace of rate hikes after the June and July meetings now seems to be a longshot," Greg McBride, chief financial analyst at Bankrate, said.