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The numbers: The cost of living leaped in June by the largest amount since 2008, leaving the increase in U.S. inflation over the past 12 months well over 5%.
The consumer price index climbed 0.9% last month, the government said Tuesday. The cost of used cars accounted for more than one-third of the increase, but prices for food, energy and shelter also rose sharply.
The increase in the cost of living easily exceeded forecasts. Economists polled by The Wall Street Journal had forecast a 0.5% advance.
The rate of inflation in the 12 months ended in June climbed to 5.4% from 5% in the prior month. The last time prices rose that fast was in 2008.
Another closely watched measure of inflation that omits volatile food and energy also roe 0.9% In June. The 12-month rate increased to 4.5% from 3.8% and stood at a 29-year high.
The core rate is closely followed by economists as a more accurate measure of underlying inflation.
Read: Higher U.S. inflation isn’t going away just yet. Here’s why
Big picture: The rapid recovery in the economy has had an unwanted side-affect: Higher inflation.
Businesses can’t get enough supplies or labor to keep up with surging sales, forcing them to pay higher prices for almost everything. In turn, they are trying to pass those extra costs onto customers.
Read: Job openings hit record 9.2 million, but workers aren’t easy to find
The Federal Reserve is betting big that widespread shortages will fade away once the U.S. and global economies return to normal.
Ditto for inflation: The central bank predicts inflation will taper off toward its 2% target by next year, using its preferred PCE price barometer.
Yet even the Fed admits it was caught off guard by how high inflation has risen. There’s a risk inflation could stay higher for longer than it expected, according to minutes of the Fed’s most recent strategy session.
So far most investors have been unruffled, though the latest CPI is likely stoke fresh worries.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
were set to open lower in Tuesday trades after the CPI report.
