US inflation at new 40-year high as price hikes spread

WASHINGTON — Prices for gasoline, 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 the rise costs.

Consumer prices jumped 8.6% last month from a year earlier, faster than April’s 8.3% year-on-year increase, the labor department. The new inflation figure, the highest since 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. Much higher prices for everything from plane tickets to restaurant meals to new and used cars have contributed to this surge. These price spikes have also increased so-called “core” inflation, a measure that excludes food and energy price volatility. In May, core prices jumped 0.6% for the second month in a row. They are now 6% above what they were a year ago.

Friday’s report underscored fears that inflation is spreading far beyond energy and goods whose prices are being pushed up by obstructed supply chains and the invasion of Ukraine by the Russia. It also caused stock prices to fall. Increased pressure on the Fed to raise rates even faster — meaning more expensive loans for consumers and businesses — will also increase the risk of a recession.

“Virtually every industry has above-normal inflation,” said Ethan Harris, head of global economic research at Bank of America. “It has made its way into every nook and cranny of the economy. That’s what makes it worrying, because it means it’s likely to persist.

Gasoline prices rose 4% in May alone and are up almost 50% in one year. The national average price at the pump hit $4.99 on Friday, according to AAA, approaching an inflation-adjusted record high of $5.40.

The cost of groceries jumped nearly 12% last month from a year earlier, the biggest such increase since 1979. Rising grain and fertilizer prices after Russia’s war against Ukraine intensifies this increase. Restaurant prices have jumped 7.4% over the past year, the biggest 12-month rise since 1981, reflecting higher costs for food and workers.

Employers face immense pressure to raise wages in a labor market that remains robust, with low unemployment, few layoffs and near-record job openings. But while average wages are rising at their fastest pace in decades, they are not rising fast enough for most workers to keep pace with inflation. Many households have accumulated savings from government stimulus assistance during the pandemic and now have to dip into those savings to pay their bills.

Housing prices continue to rise. The government’s housing index, which includes rents, hotel rates and a measure of how much it costs to own a home, has risen 5.5% over the past year, the most since 1991. Airline fares have risen nearly 38% in the past year, the biggest such increase since 1980.

Rampant inflation puts great pressure on families. Low-income and black and Hispanic Americans, in particular, are struggling because, on average, a greater proportion of their income is consumed by necessities.

In light of Friday’s inflation reading, the Fed is almost certain to implement the fastest round 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. It 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 the Fed would then slow its rate hikes to a quarter-point hike at its September meeting or perhaps even pause its credit tightening. But with inflation raging, investors are now forecasting another half-point hike in September, which would be the fourth since April.

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. On Friday, Biden responded to the latest numbers in a speech at the Port of Los Angeles, which is now moving a record amount of cargo under a deal the White House has spearheaded. Yet even though the number of ships waiting to unload in port has fallen sharply, inflation has not diminished.

“My administration,” the president said, “will continue to do everything in its power to bring down prices for the American people.”

Soaring prices forced Rocky Harper of Tucson, Arizona to start working on-demand 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, 44, 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 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.”

A World Bank report this week made it clear that high inflation is a global problem that threatens to slow down economies around the world. For the 19 countries that use the euro, inflation fueled by rising food and fuel prices hit a record 8.1% last month, leading the European Central Bank to announce that it will raise interest rates for the first time in 11 years, starting in July. and again in September.

Over the next few months, prices in the United States may ease somewhat. Some major retailers, including Target, Walmart and Macy’s, are now stuck with too much patio furniture, electronics and other goods that are suddenly out of demand. Target said it was slashing prices due to mounds of unsold inventory.

Although Americans have deteriorated economically, they have largely maintained their spending. They are increasingly turning to credit cards as total card debt rose sharply in April, the Fed reported, although that debt barely rose above pre-pandemic levels.

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