WASHINGTON (AP) – Costs for gas, food and most other goods and services rose in May, raising inflation to a new four-decade high and giving U.S. households no respite from the rise of costs.
Consumer prices rose 8.6% last month from 12 months earlier, faster than the year-on-year rise of 8.3% in April, the Labor Department said on Friday. The new inflation figure, the largest annual increase since December 1981, will increase pressure on the Federal Reserve to continue to raise interest rates aggressively.
Month-on-month, prices rose 1% from April to May, much faster than the 0.3% rise from March to April. Behind this increase were much higher prices for food, energy, rent, plane tickets and new and used cars.
Widespread price increases also raised so-called “underlying” inflation, a measure that excludes volatile food and energy prices. In May, base prices rose sharply by 0.6% for the second month in a row and are now up 6% from a year ago.
Unbridled U.S. inflation is putting strong pressure on families, forcing them to pay much more for food, gas, and rent, and reducing their ability to pay for discretionary items, from haircuts to electronics. Americans with lower incomes and blacks and Hispanics in particular are struggling because, on average, a larger proportion of their income is consumed by necessities.
Some evidence in recent weeks had suggested that inflation could be moderating, especially for long-term goods that were trapped in the thicknesses and scarcity of the supply chain last year. But this trend seemed to be reversed in May, with used car prices rising 1.8% after falling for three months in a row.
New car prices also rose as a result of car production, which was hit by a shortage of semiconductors. And clothing prices are rising after falling in April.
In light of Friday’s inflation reading, the Fed is almost certain to make the fastest series of interest rate hikes in three decades. By sharply raising borrowing costs, the Fed expects to cool spending and growth enough to curb inflation without plunging the economy into a recession. For the central bank, it will be a difficult balancing act.
The Fed has indicated that it will increase its key short-term rate by half a point, twice the size of the usual rise, next week and again in July. Some investors expected the Fed to reverse rate hikes to a quarter-point increase when it meets in September or would even stop its credit tightening.
But with inflation soaring, investors are increasingly expecting a third half-point increase from the Fed in September. These rate increases will lead to much higher borrowing costs for consumers and businesses.
Polls show that Americans see high inflation as the nation’s main problem, and most disapprove of President Joe Biden’s handling of the economy. Republicans in Congress are discussing Democrats on the issue ahead of this fall’s midterm elections.
Inflation has remained high although the sources of rising prices have changed. Initially, strong demand for goods from Americans who were trapped at home for months after the impact of VOCID caused supply chain shortages and kidneys and pushed up the prices of cars, furniture and the appliances.
Now, as Americans pick up on spending on services, including travel, entertainment and dinners, the cost of airfare, hotel rooms and restaurant meals has skyrocketed. The Russian invasion of Ukraine has further accelerated oil and natural gas prices. And with China easing COVID’s strict blockades in Shanghai and elsewhere, more of its citizens are driving, pushing oil prices even higher.
Rising inflation has forced Rocky Harper of Tucson, Arizona, to start doing work for delivery companies, in addition to his regular full-time job with a package delivery service. His main job is $ 800 a week, he said, “it used to be very good money and now it’s just above the dirt.”
Harper, 43, said he and his fiancée are delaying marriage because they can’t afford it right now. They cut Netflix and Hulu. The catalytic converter of your car was recently stolen, an increasingly common theft, by the rare metals they contain and which have risen in price. A repair will cost $ 1,300.
“With food, gas and rent, holy cow,” he said. “I’m working a massive amount of overtime, just to do it, just to keep it together.”
In the coming months, the prices of goods are expected to finally fall. Many large retailers, including Target, Walmart and Macy’s, have reported that they are now stuck with too much patio furniture, electronics and other items they ordered when these items were in higher demand and will have to discount them.
However, rising gas prices are eroding the finances of millions of Americans. Pump prices are averaging nearly $ 5 a gallon nationally and are closer to the inflation-adjusted record of about $ 5.40 reached in 2008.
Bank of America Institute research, which uses anonymous data from millions of credit and debit card accounts of its customers, shows that spending on gas consumes a larger share of consumers’ budgets and limits their ability to buy other items. .
For lower-income households, defined as those with incomes below $ 50,000, gas spending reached nearly 10 percent of all credit and debit card spending in the last week of May, the government said. institute in a report this week. This is an increase from 7.5% in February, a sharp increase in such a short period.
All the bank’s customers have been spending on long-term goods, such as furniture, electronics and home improvement, for the past year, according to the institute. But spending on plane tickets, hotels and entertainment has continued to rise.
Economists have pointed to this shift in spending on goods and services as a trend that should help reduce inflation by the end of the year. But with wages rising steadily for many workers, prices are also rising in services.