The costs of gas, food and most other goods and services jumped in May, pushing inflation to a new four-decade high and giving U.S. households no respite from rising costs.
Consumer prices jumped 8.6% last month from 12 months earlier, faster than April’s 8.3% year-on-year rise, the department said on Friday. work. The new inflation figure, the largest annual increase since December 1981, will increase pressure on the Federal Reserve to continue to aggressively raise interest rates.
Month-over-month, prices jumped 1% from April to May, much faster than the 0.3% rise from March to April. Behind this spike were much higher prices for food, energy, rent, plane tickets, and new and used cars.
Widespread price increases have also increased so-called “core” inflation, a measure that excludes volatility in food and energy prices. In May, underlying prices jumped 0.6% for the second month in a row and are now 6% above their level of a year ago.
Rampant inflation in the United States is putting a lot of pressure on families, forcing them to pay far more for food, gas and rent and reducing their ability to afford discretionary items, from haircuts to clothes. ‘electronic. Low-income and black and Hispanic Americans, in particular, are struggling because, on average, a greater proportion of their income is consumed by necessities.
Some evidence in recent weeks had suggested that inflation may be moderating, particularly for durable goods which were caught up in supply chain groans and shortages last year. But that trend appeared to reverse in May, as used car prices rose 1.8% after falling for three straight months.
Prices for new cars have also risen as car production remains crippled by shortages of semiconductors. And clothing prices are rising after falling in April.
In light of Friday’s inflation reading, the Fed is almost certain to deliver the fastest series of interest rate hikes in three decades. By sharply raising borrowing costs, the Fed hopes to cool spending and growth enough to rein in inflation without tipping the economy into a recession. For the central bank, this will be a difficult balancing act.
The Fed announced it would raise its key short-term rate by half a point – double the usual hike – next week and again in July. Some investors had hoped that the Fed would then reduce its rate hikes to a quarter-point increase at its September meeting or perhaps even pause its credit tightening.
But with inflation raging, investors are now increasingly expecting a third half-point Fed hike in September. These rate increases will result in significantly higher borrowing costs for consumers and businesses.
Polls show Americans see high inflation as the country’s biggest problem, and most disapprove of President Joe Biden’s handling of the economy. Congressional Republicans are hammering Democrats on the issue ahead of the midterm elections this fall.
Inflation has remained high even as the sources of rising prices have shifted. Initially, strong demand for goods from Americans who were stuck at home for months after the COVID hit caused supply chain shortages and groans and drove up prices for cars, furniture and appliances. .
Now, as Americans start spending on services again, including travel, entertainment and restaurants, the costs of airfare, hotel rooms and restaurant meals have skyrocketed. Russia’s invasion of Ukraine further accelerated oil and natural gas prices. And with China easing strict COVID lockdowns in Shanghai and elsewhere, more of its citizens are driving, driving up oil prices even further.
Soaring inflation forced Rocky Harper of Tucson, Arizona to start working for delivery companies, in addition to his regular full-time job with a package delivery service. His main job brings in $800 a week, he said, which “was once a very good sum of money and is now just above poverty.”
Harper, 43, said he and his fiancée were delaying the wedding because they couldn’t afford it at the moment. They cut Netflix and Hulu. His car’s catalytic converter was stolen recently – an increasingly common theft – for the rare metals they contain, which have skyrocketed in price. A repair will cost $1,300.
“Along with food, gas and rent – the sacred cow,” he said. “I work a lot of overtime, just to be successful, just to stay together.”
In the coming months, property prices should finally come down. Many large retailers, including Target, Walmart and Macy’s, have reported that they are now stuck with too much patio furniture, electronics and other goods they ordered when those items were in high demand and were in high demand. they will have to reduce them.
Even so, rising gasoline prices are eroding the finances of millions of Americans. Pump prices are averaging nearly $5 a gallon nationwide and are approaching the inflation-adjusted record high of about $5.40 set in 2008.
Research by the Bank of America Institute, which uses anonymous data from millions of their customers’ credit and debit card accounts, shows spending on gas is eating up more of consumers’ budgets and hampering their ability to buy other items.
For low-income households — defined as those with incomes below $50,000 — gas spending reached almost 10% of all credit and debit card spending in the last week of May, the institute said in a report this week. That’s up from around 7.5% in February, a big increase in such a short time.
Spending by all bank customers on durable goods, such as furniture, electronics and home renovations, has plunged in the past year, the institute found. But their spending on airfare, hotels and entertainment continued to rise.
Economists have pointed to this shift in spending from goods to services as a trend that should help reduce inflation by the end of the year. But as wages rise steadily for many workers, prices also rise in services.