Gas, food, and most other products and services all increased in price in May, pushing inflation to a record four-decade high and leaving the American people with no relief from mounting costs.
According to the Labor Department, consumer prices increased 8.6% in May compared to the same month a year ago, which was quicker than the 8.3% increase in April.
The latest inflation figure, which is the highest since 1981, will put even more pressure on the Federal Reserve to keep hiking rates rapidly.
Prices increased by 1% month over month in April, substantially quicker than the 0.3 per cent increase in March.
Increased prices for everything from plane tickets to restaurant meals to new and used autos contributed to the increase. These price increases also pushed up “core” inflation, which includes volatile food and energy costs.
For the second month in a row, core prices increased sharply by 0.6 per cent. They’ve risen 6% since last year.
The survey released on Friday added to concerns that inflation is expanding beyond energy and products, where snarled supply chains and Russia’s invasion of Ukraine have pushed up prices. Stock values plummeted as a result. Increased pressure on the Fed to raise rates even quicker, implying higher-cost loans for households and businesses, will also increase the danger of a recession.
According to Ethan Harris, head of global economic analysis at Bank of America, “almost every sector has higher-than-normal inflation.” “It’s infiltrated every sector of the economy.” That’s what’s alarming about it: it indicates it’ll probably continue.”
Just in May, gas prices increased by 4%, bringing the year-to-date increase to roughly 50%. According to AAA, the national average gas price reached $4.99 on Friday, creeping closer to a record high of $5.40 when adjusted for inflation.
Groceries cost about 12% more last month than they did a year ago, the most since 1979. Grain and fertiliser costs are rising as a result of Russia’s war against Ukraine. Restaurant prices have risen 7.4% in the last year, the highest annual increase since 1981, due to increasing food and labour costs.
In a labour market that is still strong, with low unemployment, few layoffs, and near-record job postings, employers are under enormous pressure to raise wages.
However, while average incomes are climbing at their quickest rate in decades, most employees are not keeping up with inflation.
During the pandemic, many households accrued savings as a result of government stimulus handouts, and are now forced to use their savings to pay expenses.
The expense of living continues to rise. The government’s shelter index, which includes rentals, hotel rates, and a gauge of how much it costs to own a home, grew 5.5 per cent in the last year, the highest increase since 1991. Airline rates have increased by about 38% in the last year, the most significant increase since 1980.
Families are being put under a lot of stress as a result of high inflation. Lower-income Americans, particularly Black and Hispanic Americans, are struggling because essentials absorb a higher share of their income.
The Fed is almost certain to conduct the fastest run of interest rate hikes in three decades, as a result of Friday’s inflation reading. The Fed intends to reduce spending and growth enough to keep inflation under control without causing the economy to enter a recession by hiking borrowing prices excessively. The balancing act will be difficult.
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The Federal Reserve has indicated that it will raise its main short-term interest rate by a half-point next week and again in July, which is double the average increase. When the Fed meets in September, some investors were hoping for a quarter-point boost or possibly a pause in credit tightening.
However, investors now expect another half-point boost in September, the fourth since April, due to rising inflation.
