The cost of gas, food, and other commodities rose in May, pushing U.S. inflation to a new four-decade high and giving American households no respite from rising costs.
Consumer prices rose 8.6 percent last month from 12 months earlier, faster than a year-on-year rise of 8.3 percent in April, the Labor Department said Friday.
Month-on-month, prices rose 1% in May alone, a sharp rise from a 0.3% rise from March to April. Much higher gas prices were to blame for most of this increase.
Unbridled U.S. inflation is putting strong pressure on households, 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.
Economists expect inflation to fall this year, though not much. Some analysts have predicted that the inflation indicator that the government reported on Friday – the consumer price index – could fall below seven percent by the end of the year. In March, the year-on-year CPI reached 8.5%, the highest rate since 1982.
Rate hikes are coming fast
High inflation has also forced the Federal Reserve to what is likely to be the fastest series of interest rate hikes in three decades. By aggressively raising borrowing costs, the Fed hopes 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.
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 COVID-19 caused supply chain shortages and kidneys and pushed up car prices. furniture and 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.
Retailers warn that consumers are taking advantage
Commodity prices are expected to fall in the coming months. 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 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 of 7.5 percent in February, a sharp increase in such a short period.
All of 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.