Prices of gas, food and other necessities jumped in May, pushing inflation to a four-decade high and providing no relief to American households from rising costs.
Prices of gas, food and other necessities jumped in May, pushing inflation to a four-decade high and providing no relief to American households from rising costs.
Prices of gas, food and other necessities jumped in May, pushing inflation to a four-decade high and providing no relief to American households from rising costs.
Consumer prices rose 8.6% last month compared to 12 months ago, the Labor Department said Friday, sharper than April’s year-over-year increase of 8.3%.
On a month-to-month basis, prices rose 1% from April to May, a massive increase from the 0.3% increase from March to April. Much higher gas prices were to blame for that increase.
America’s widespread inflation is putting severe pressure on families, forcing them to pay more for food, gas and rent and eroding their ability to afford discretionary items from haircuts to electronics. Low-income and black and Hispanic Americans, in particular, are struggling because, on average, a large portion of their income consumes necessities.
Economists expect inflation to be lower this year, though not by much. Some analysts projected the government on Friday forecast inflation – the consumer price index – could fall below 7% by the end of the year. In March, the year-on-year CPI reached 8.5%, the highest rate since 1982.
High inflation has also forced the Federal Reserve to have the fastest series of interest rate hikes in three decades. By aggressively raising the cost of borrowing, the Fed hopes to cool spending and growth to contain inflation without putting the economy into recession. For the central bank, this will be a difficult balancing act.
Polls show that Americans view high inflation as the nation’s top problem, and most disapprove of President Joe Biden’s handling of the economy. Congressional Republicans are attacking Democrats on the issue ahead of this fall’s midterm election.
Inflation remains high, even though the sources of rising prices have changed. Initially, strong demand for goods from Americans, who had been stuck at home for months after COVID hit, led to shortages and supply chain failures and soared prices of cars, furniture and appliances.
Now, as Americans begin to spend on services including travel, entertainment and dining out, the cost of airline tickets, hotel rooms and restaurant meals has soared. Russia’s invasion of Ukraine has pushed up oil and natural gas prices further. And with China easing strict COVID-19 lockdowns in Shanghai and elsewhere, more of its citizens are driving, pushing oil prices even higher.
Commodity prices are expected to decline 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 when those items were in high demand and have to be discounted.
Still, rising gas prices are destroying the finances of millions of Americans. Prices at the pump average about $5 per gallon nationally and are approaching an inflation-adjusted record of about $5.40 in 2008.
Research by the Bank of America Institute, which uses anonymized data from the credit and debit card accounts of millions of its customers, finds spending on gas is eating up a big chunk of consumers’ budgets and outpacing their ability to buy other items. .
The institute said in a report this week that for low-income households — defined as those earning less than $50,000 — spending on gas reached about 10% of all spending on credit and debit cards. This is up from about 7.5% in February, a huge increase in such a short period.
The institute found that spending by all of the bank’s customers on long-lasting items such as furniture, electronics and home improvement declined from a year ago. But their expenditure on plane tickets, hotels and entertainment continues to rise.
Economists point to the shift in spending from goods to services as a trend that should help moderate inflation by the end of the year. But with the steady rise in wages for many workers, prices in services are also rising.