US inflation has soared to the fastest annual rate since the financial crisis, fuelling concerns of early policy tightening by the Fed.
The Labor Department said its consumer price index (CPI) rose 0.6 per cent last month after surging 0.8 per cent in April.
In the 12 months to May, CPI accelerated five per cent, its biggest annual increase since 2008.
Investors shrug off rise
The inflation jump surpassed economists’ forecast of a 0.4 per cent rise, but investors were unfazed as Wall Street’s main indexes opened higher.
“The numbers were slightly more than expected, but not way outside of the range,” said Mark Grant, chief global strategist at B. Riley Financial.
“I don’t think this is going to change the Fed’s view of keeping rates very low.”
All eyes on the Fed
The CPI increase was driven by a 7.3 per cent rise in the costs of used cars and trucks, which was on top of a ten per cent jump in April.
The cost of hotel accommodation also increased, and consumers paid more for furniture and bedding.
“The market has been trading in relatively rangebound fashion leading up to the data release,” said Ali Jaffari, head of North American Capital Markets at Validus.
“This morning’s release will restoke concerns around inflation and place further pressure on the Fed to acknowledge the continued rise in prices and prepone tapering discussions.”