US inflation at 40-year high with no sign of slowing

The cost of gas, food and most other goods and services jumped in May, pushing inflation to its highest level in four decades and giving Americans no respite.

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 largest increase since December 1981, is increasing pressure on the Federal Reserve to continue to aggressively raise interest rates.

On a month-to-month basis, prices jumped 1% in May, much faster than the 0.3% rise in April. Core inflation, a measure that excludes volatility in food and energy prices, climbed 0.6% for the second month in a row and is now 6% higher than it was. one year ago.

Friday’s report highlighted fears that inflation could spread beyond energy and goods whose prices are being pushed up by obstructed supply chains and the invasion of Ukraine by the Russia. If the Fed becomes more aggressive in fighting inflation with rate hikes, it will mean more expensive loans for families and businesses, and increase the risk of 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.

Grocery prices jumped nearly 12% from a year earlier, the biggest such increase since 1979. Rising grain and fertilizer prices following the invasion of l Ukraine intensifies this rise. Restaurant prices have jumped 7.4% in the past year, the biggest 12-month rise since 1981. Owners are also facing immense pressure to raise wages in a tough job market.

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. Airfares have risen nearly 38% over the past year, the biggest such increase since 1980.

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

There have been signs that inflation may be moderating, particularly for goods caught in supply chain grunts and shortages. That trend appeared to reverse in May, with used car prices rising 1.8% after falling for three straight months. New car prices have also increased. Clothing prices also reversed and rose in May.

In light of Friday’s inflation reading, the Fed is almost certain to deliver 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 rein in inflation without tipping the economy into a recession. For the central bank, this will be a difficult balancing act.

Fed Chairman Jerome Powell signaled that the Fed would double the size of a typical hike next week, and again in July, meaning half-point jumps. Some had hoped that the Fed would then reverse the rate hikes in September, or even pause its credit tightening.

But with inflation raging, economists are increasingly expecting a third half-point hike in the fall, which would be the fourth since April.

Polls show Americans see high inflation as the nation’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.

Biden plans to tackle inflation later Friday in a speech at the Port of Los Angeles, which is moving a record amount of cargo around the clock under a White House-led deal. Yet, even though the number of ships waiting to unload at the port has fallen sharply, inflation has not diminished.

Rocky Harper from Tucson, Arizona had to start working 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, 43, said he and his fiancée were postponing their wedding because they couldn’t afford it. They cut Netflix and Hulu. His car’s catalytic converter was stolen recently – an increasingly common crime due to soaring prices for the rare metals they contain. A repair cost $1,300.

“Along with food, gas and rent – the sacred cow,” Harper 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 on Thursday that would 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. Many large 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. This week, Target said it was cutting prices due to mounds of unsold inventory.

Americans lost their economy, but largely held their own spending, even with gritted teeth.

Wages are not rising as fast as inflation, but they continue to rise at the fastest rate in several decades. And many households – including low-income ones – have accumulated savings from government support payments during the pandemic. They are now tapping into those savings to meet higher prices.

Americans are also increasingly turning to credit cards, with total credit card debt rising sharply in April, the Federal Reserve reported earlier this week, although it barely topped US levels. before the pandemic.

How long these trends — higher wages, additional savings and growing credit card debt — can allow Americans to keep spending will be a key factor in determining recession risk. To calm inflation, spending growth must be slowed.

For low-income Americans, there are signs that this is already the case. Sales are slowing at retailers that cater to budget-conscious shoppers, such as dollar stores. Walmart said customers were opting for less expensive items.

Research by the Bank of America Institute, which uses anonymous data from millions of their customers’ credit and debit card accounts, shows that gasoline consumes a greater share of budgets.

For low-income households — defined as those with incomes below $50,000 — gas spending reached almost 10% of all credit and debit card spending in the last week of May, the institute said this week. That’s up from around 7.5% in February, a big increase in such a short time.

Many small businesses are still struggling to meet rising costs for supplies and labor, a sign that prices will continue to rise. Andrew McDowell, founder of With Love Market and Cafe in Los Angeles, said he was paying more for food supplies, workers and even reusable bags, which previously cost him 23 cents but now cost 45 cents.

The company’s BLT chicken now costs 20% more than before the pandemic. McDowell said he still grapples with the highest prices for supplies and workers he has ever faced. He is planning an audit of all his costs and menu prices and expects he will have to raise prices again, by 10-20%.

“Every product is impacted, every aspect of the business is affected,” McDowell said.

Edward N. Arrington