Stating facing record level of inflation

Effect on spending uncertain

With another month of record inflation in May, Connecticut consumers appear to be keeping up their spending with companies continuing to post new job openings to keep up with customer demand.

The Consumer Price Index jumped a full percentage point in May as European countries took additional steps to cut their dependence on Russian oil after the invasion of Ukraine. The conflict has spiked U.S. gas prices to record highs, with a spillover effect into every corner of an economy that had already been absorbing inflationary pressure as a result of the COVID-19 pandemic’s impact on factory production and logistics.

But Connecticut employers continue to hire, with more than 106,000 openings in May that represented an 8 percent increase from April. And companies continue to seek people in June — the Glassdoor career website listed nearly 20,000 new jobs postings in the past week alone.

Unanswered is whether surging prices for rent and gas — and possibly electricity during the summer months — will force consumers to cut back on leisure spending this summer. If so, it would be a blow for restaurant and entertainment venues that were hit hard during the pandemic.

U.S. Sen. Richard Blumenthal, D-Conn., has suggested a suspension of the federal gasoline tax of 18.4 cents a gallon; a Federal Trade Commission crackdown on price gouging; and a windfall tax on 50 percent of any excess profits by the largest oil companies, with resulting rebates for consumers.

Speaking last week, Blumenthal said that even with any such windfall tax in place, gas prices are likely to remain elevated for the duration of the Ukraine conflict.

“I’m angry — just as every driver in the state of Connecticut is understandably angry about these skyrocketing gasoline prices,” said Blumenthal, speaking of his experiences driving around Connecticut and seeing posted prices above $5 a gallon at some stations. “Rebates would come this year in the hundreds of dollars — we calculated more than $300 per consumer.”

But the impact of inflation varies from household to household, with rising prices affecting those the most who live paycheck-to-paycheck to make rent and fill the tank for work or living scenarios requiring ample travel. While Connecticut’s minimum wage is slated to increase a dollar to $14 an hour entering July, that represents only catch-up pay for those earning the least, given the trajectory of prices in the past year.

Short of a bump in pay from an employer — or the addition of a second source of income — the only other relief valve for households is cutting back on expenses. In April, U.S. consumers ratcheted back spending to 0.9 percent from 1.4 percent in March, according to the Bureau of Economic Analysis, with the May update not expected until the end of this month.

Mark Zandi, chief economist for Moody’s Analytics, opined in a series of Twitter posts on Friday the belief that once oil prices settle, inflation will recede quickly.

“Supply chain stresses are easing, inventories of goods are building, workers are getting back on the

job, and inflation expectations are back down,” Zandi stated Friday. “I suspect we are just a few months away from some [Consumer Price Index] reports that are much easier on the eyes and pocketbook.”