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US stocks fell sharply ON Friday after an eagerly awaited inflation reading came in much hotter than expected, indicating the Federal Reserve will need to keep pressing hard on the brakes to get surging price pressures under control, media reports said.

The May consumer price index showed a monthly rise of 1 per cent, well above the 0.7 per cent rise forecast by economists surveyed by The Wall Street Journal. The year-over-year rate rose 8.6 per cent, topping the 40-year high of 8.5 per cent seen in March, MarketWatch reported.

The so-called core rate of inflation, which omits food and energy, rose by 0.6 per cent, a tick higher than expected. The increase in the core rate over the past year slowed to 6 per cent from 6.2 per cent. The Fed views the core rate as a more accurate measure of price trends, but surging food and gasoline costs are fuelling a public and political outcry over inflation, MarketWatch reported.

"One can easily draw a scenario where supply shocks continue to push inflation higher despite a hawkish Federal Reserve tightening monetary policy," said Nancy Davis, founder of Quadratic Capital Management and portfolio manager of the Quadratic Interest Rate Volatility and Inflation Hedge exchange-traded fund.

"A stagflation environment is bad overall for investments. Equities and bonds go down at the same time and the supposedly all-weather 60/40 portfolio is not ready for stagflation. So far in 2022, both bonds and equities are showing negative performance at the same time," Davis said, in emailed comments.

"This was a very bad inflation report for both the White House and Fed," wrote Edward Moya, Senior Market Analyst, for the Americas at OANDA. "The Fed's latest mistake is that they did not act strongly to cool inflation, and they will now be forced to deliver more rate hikes as inflation is clearly not transitory and not ready to peak," MarketWatch reported.