"June’s big inflation number will ramp up scrutiny of price-related data as policymakers assess whether the economy is at greater risk of overheating."
The headline CPI index rose 5% in May, marking the highest growth rate since August 2008.
The largest gain in the CPI in nearly 12 years reflects in part the comparison to extremely weak inflation a year ago amid pandemic lockdowns.
Economists expect the rise in prices to continue into the summer, pushing inflation past the Federal Reserve’s 2% target.
“Deflation is likely to take hold over the next few months as businesses slash prices in response to much lower demand from the coronavirus outbreak."
The CPI rose 2.1% in November on a year-on-year basis but the Fed "doesn’t expect inflation to sharply exceed its 2% goal anytime soon."
The July inflation readings reduce "the chances that the U.S. central bank would cut rates by half a percentage point" in September.
“The uptick in inflation, being largely driven by higher gas prices, is unlikely to worry investors or the Federal Reserve."
The Fed will view the first decline in the CPI since March as "further proof that price pressures are building more slowly than some have feared."
"The inflation picture is still fairly tame, certainly not heating up enough to push the Fed to a more aggressive stance."
The increase was the largest since September 2008 but economists see core inflation easing by the end of the year.
The trend of steadily building inflation pressures could prompt the Federal Reserve to continue raising interest rates, analysts said.
