Record gas prices brought inflation to 8.6% during the 12 months ending May, above the rate of April, according to the latest consumer price index, the basic measure of inflation government.
The reading of the basic CPI, which eliminates the volatility of food and energy prices, increased by 6% during the same period, higher than the level of the previous month. Both readings are among the biggest price jumps experienced by consumers since 1981.
Overall, the increases were higher than expected by economists, who expected prices to rise by 8.3% over the 12 months ending May, and would have matched the April reading. This report shattered hopes that inflation would have peaked earlier this year.
“Inflation is rising and rising with a worsening outlook,” said Sung Won Sohn, a professor of finance and economics at Loyola Marymount University in Los Angeles. “The likelihood of a recession over the next year is rising. Inflation is consuming consumers’ purchasing power. Given that consumer spending accounts for about 70% of the economy, a real decline in consumer spending would mean a big blow to consumers.
The typical U.S. household spends about $ 460 more each month than last year to buy the same basket of goods and services, said Mark Zandi, chief economist at Moody’s Analytics.
Energy prices rose 34.6% from a year ago, driven by a nearly 50% jump in gas prices over the past year. AAA monitoring of gas prices shows that the price of a gallon of normal gas nationwide is now $ 4.99, after setting records in 31 of the last 32 days. The June CPI report to be released next month will show another big jump in gas prices.
But rising energy prices were not limited to record gasoline prices. The price of electricity has risen by 12% in the last 12 months, the largest annual increase since 2006. And the price of natural gas used by consumers has risen by 30.2%, the biggest jump since 2008.
Only higher energy prices added 2 percentage points to the global CPI.
Not only energy is raising prices. The Labor Department said that almost all the main components that make up the index showed an increase in prices.
Prices of food bought at home rose by 11.9%, the largest increase in 12 months since 1979, with eggs 32.2%, milk 15.9% and poultry 16 , 6%.
The housing index, which measures rents and other housing costs, rose 5.5%, the biggest gain in 12 months since 1991. Although it may not be as big. like double-digit price increases in other categories, the money consumers spend on their home, whether it’s buying or renting, is usually the biggest expense they make each month.
Used car prices, which had shown signs of moderation with monthly declines over the past three months, rose again, raising prices by 16.1% over the past 12 months. Meanwhile, new car prices rose 12.6% in the same period. The shortage of computer chips has slowed production at carmakers, and this limited inventory is responsible for rising prices.
Strong demand for air travel at the start of the summer season is also raising air fares, which rose 12.6% month-on-month in May, the third consecutive monthly increase of more than 10%. In the last 12 months, air fares have risen by 37.8% and fares in May are 21.7% higher than in May 2019, before the pandemic nearly halted demand for air travel. it is sure to continue to aggressively raise interest rates when it meets next week. At its May meeting, the Fed raised interest rates by half a percentage point, the first such move in 22 years. Another half-point hike is likely at next week’s meeting, with some forecasters now calling for a three-quarters hike in light of Friday’s report. But there are concerns that the Fed’s monetary tightening could plunge the US economy into a recession. This has been a major factor in the sharp fall in US stock prices in recent months, which has wiped out much of the wealth of households. Shares fell sharply again on Friday after the inflation reading.
“Inflation is proving to be more persistent than it was thought a year ago, when transition was the buzzword,” said Jim Baird, investment director at Plante Moran Financial Advisors. “The two key questions now? How far will the Fed go to bring down inflation and how far can the Fed go without pushing the economy into recession?”
While the inflation report provoked further attacks on the Republican administration by Biden, the White House tried to blame the worst inflation on rising oil and gas prices after Russia invaded Ukraine .
“Today’s inflation report confirms what Americans already know. Putin’s price hike is hitting Americans hard,” President Joe Biden said in Los Angeles Harbor. ‘stopped by a regional summit to address what his team considers the most pressing current issue. : high prices on everything from gasoline to groceries.
Biden both tried to acknowledge the pain the Americans were feeling, explain how he was trying to resolve it, and blame others.
“I get it,” Biden said. “Inflation is a real challenge for American families.”
He criticized shipping conglomerates for raising prices and oil companies for their share buybacks, and highlighted oil giant Exxon for making “more money than God” last year.
– Kevin Liptak of CNN contributed to this report.