Year-over-year inflation hit 8.6 percent last month, the largest increase since December 1981, according to the U.S. Bureau of Labor Statistics.
The increase, slightly higher than the 8.3 percent increase in April, was broad-based and especially pronounced in shelter, gasoline and food. The energy index increased by nearly 4 percent with the gasoline index rising 4.1 percent and the other major component indexes also increasing.
Decades-high year-over-year increases were reported for several commodities, including fuel oil, which spiked 106.7 percent, the largest increase in the survey’s 87-year history. The food index, which increased 10 percent, saw its largest increase since March 1981. The food-at-home index increased by nearly 12 percent, the largest spike since April 1979.
The American Bankers Association’s Economic Advisory Committee projects inflation will fall to 6.3 percent in the fourth quarter of this year, before dropping to 2.4 percent late in 2023. The committee expects the Federal Reserve to increase its federal funds target rate by another 150 basis points this year followed by 50 more early in 2023 to combat inflation.
The committee, which consists of 13 leading economists from the largest U.S. banks, expects the Fed will slow its pace of interest rate hikes once the Fed funds rate reaches 3 percent in the middle of 2023. The economists expect inflation will gradually weaken toward the Fed’s 2 percent objective over the next two years. As the Fed slows inflation, the committee is projecting a 40 percent chance of a recession in 2023.