Inflation Rate Rises to 5%, Highest Since 2008

Costs to Fly, and Buy, Rent Cars Surge

Young Asian businessman wearing a protective face mask and suit sits in business first class seat using a smartphone.
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Mongkol Chuewong/Getty Images

Consumer prices increased 5% in May—the highest year-over-year inflation rate in nearly 13 years—as costs to buy used vehicles, fly and rent cars soared.

Key Takeaways

  • The inflation rate in May rose to 5% from 4.2%, the government said Thursday. That’s the highest since 2008. 
  • The so-called core inflation rate—which excludes food and energy prices—accelerated to 3.8%, the highest since 1992.
  • Part of the sharp increase in year-over-year rates can be attributed to how low prices were last spring, when the economy crashed amid pandemic lockdowns. 
  • Even prices between April and May rose faster than economists expected, with the cost of used cars and trucks, airfare, rental cars, and food all rising.

Inflation as measured by the Consumer Price Index (CPI) accelerated from 4.2% in April and hasn’t risen this much on a year-over-year basis since August 2008, according to data released Thursday by the Bureau of Labor Statistics. The so-called core inflation rate—which excludes food and energy prices because they tend to be more volatile—rose to 3.8% from 3% in April, and hasn’t been as high since 1992. The sharp rise in current inflation is partly due to the fact that the pandemic triggered an economic crash last spring, making the baseline for comparison unusually low.

Consumers are feeling the increases just this year, however, since even month-over-month, prices are rising rapidly on a seasonally adjusted basis. The CPI rose 0.6% in May from April, rising nearly twice as fast as economists expected, but decelerating from the 0.8% increase between March and April. (Prior to this year, monthly inflation hadn’t risen as high as 0.6% since 2012.) Inflation actually grew faster than wages in May, meaning the average worker lost buying power despite seeing their hourly pay go up by 0.5%.

Year-over-year inflation rates—the ones more commonly referred to—soared double-digits for things like gas, used cars and trucks, and airfare, but even the monthly changes in May were telling.

Travel Costs Jump

Prices for used cars and trucks alone drove about a third of the overall increase, rising 7.3%. Travel-related costs also rose, including airfare, which was up 7%, and the cost of rental cars, which jumped 12.1% in the third straight month of double-digit increases. Grocery store bills increased 0.4% in May, reflecting a global rise in food prices, while the price of clothing rose 1.2% and furniture, 1.9%. Gas prices, which rose 9.1% as recently as March, fell for a second straight month, dropping 0.7%.

This is likely the peak for year-ago comparisons, economists said, as those “base effects” will fade in June. But inflation could remain high compared to the Federal Reserve’s traditional 2% target, as the economy’s continued reopening creates a huge demand for goods and services, and businesses—struggling to keep up due to a shortage of workers and materials—pass rising supply and labor costs on to consumers. 

We’ve already seen examples of that, with fast food restaurant Chipotle hiking prices on its menu by as much as 4% last week to help offset an increase in its workers’ wages.

Fed officials, who have said they believe that temporary factors have pushed inflation higher, are for now, aiming for inflation that’s “moderately above” their 2% target to allow the economy to rebuild. But there is growing pressure for them to at least talk about taking steps to tamp down inflation, something some observers say they will likely begin considering.