US inflation at new 40-year high as price increases spread
WASHINGTON (AP) — The prices of gas, food and most other goods and services jumped in May, raising inflation to a new four-decade high and giving American households no respite from rising costs.
Consumer prices surged 8.6% last month from a year earlier, faster than April’s yearover-year increase of 8.3%, the Labor Department said Friday. The new inflation figure, the highest since 1981, will heighten pressure on the Federal Reserve to continue raising interest rates aggressively.
On a month-to-month basis, prices jumped 1% from April to May, much faster than the 0.3% increase from March to April. Contributing to that surge were much higher prices for everything from airline tickets to restaurant meals to new and used cars. Those price spikes also elevated so-called “core” inflation, a measure that excludes volatile food and energy prices. In May, core prices jumped a sharp 0.6% for a second straight month. They’re now 6% above where they were a year ago.
Friday’s report underscored fears that inflation is spreading well beyond energy and goods whose prices are being driven up by clogged supply chains and Russia’s invasion of Ukraine. It also sent stock prices tumbling. The increased pressure on the Fed to raises rates even faster — which means highercost loans for consumers and businesses — will raise the risk of a recession, too.
“Virtually every sector has higher-than-normal inflation,” said Ethan Harris, head of global economic research at Bank of America. “It’s made its way into every nook and cranny of the economy. That’s the thing that makes it concerning, because it means it’s likely to persist.”
Gas prices rose 4% just in May and have soared nearly 50% in one year. The national average price at the pump reached $4.99 Friday, according to AAA, edging closer to an inflationadjusted record high of $5.40.
The cost of groceries surged nearly 12% last month from a year earlier, the biggest such increase since 1979. Rising prices for grain and fertilizer after Russia’s war against Ukraine, is intensifying that rise. Restaurant prices jumped 7.4% in the past year, the largest 12-month gain since 1981, reflecting higher costs for food and workers.
Employers face immense pressure to raise pay in a job 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 aren’t increasing fast enough for most workers to keep pace with inflation. Many households accumulated savings from government stimulus aid during the pandemic and are now having to draw on those savings to pay bills.
Housing costs are still climbing. The government’s shelter index, which includes rents, hotel rates and a measure of what it costs to own a home, increased 5.5% in the past year, the most since 1991. Airline fares are up nearly 38% in the past year, the sharpest such rise since 1980.
Rampant inflation is imposing severe pressures on families. Lowerincome and Black and Hispanic Americans, in particular, are struggling because, on average, a larger proportion of their income is consumed by necessities.
In light of Friday’s inflation reading, the Fed is all but certain to implement 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 curb inflation without tipping the economy into a recession. It will be a difficult balancing act.
The Fed has signaled that it will raise its key short-term rate by a half-point — double the size of the usual hike — next week and again in July. Some investors had hoped the Fed would then slow its rate increases to a quarter-point hike when it meets in September or perhaps even pause its credit tightening. But with inflation raging hot, investors now foresee yet another half-point hike in September, which would be the fourth since April.
Surveys show that Americans see high inflation as the nation’s top problem, and most disapprove of President Joe Biden’s handling of the economy. Congressional Republicans are hammering Democrats on the issue in the runup to midterm elections this fall.
On Friday, Biden responded to the latest figures in a speech at the Port of Los Angeles, which is now moving a record amount of cargo under an agreement the White House has shepherded. Yet even as the number of ships waiting to unload at the port has dropped sharply, inflation has not.
“My administration,” the president said, “is going to continue to do everything we can to lower the prices to the American people.”
Surging prices have forced Rocky Harper of Tucson, Arizona, to start doing gig work for delivery companies, on top of his regular full-time job with a package delivery service. His main job pays $800 a week, he said, which “used to be really good money and is now just above dirtpoor.”
Harper, 44, said he and his fianc√©e are delaying marriage because they can’t afford it right now. They’ve cut off Netflix and Hulu. His car’s catalytic converter was stolen recently — an increasingly common theft — for the rare metals they contain that have shot up in price. A repair cost $1,300.
“With the food, gas and rent — holy cow,” he said. “I’m working a massive amount of overtime, just to make it, just to keep it together.”