Inflation is rising at the fastest pace in 40 years, driven by record gas prices

Standard gas prices It pushed inflation to 8.6% in the twelve months to May, above the pace in April, according to the latest Consumer Price Index, the government’s core inflation gauge.

The core CPI reading, which strips out volatile food and energy prices, posted a 6% increase over the same period, higher than at the level of the previous month. Both readings are among the largest price jumps consumers have seen since 1981.

Overall, the increases were higher than economists’ expectations, who had expected prices to rise 8.3% for the 12 months ending in May, which would have matched April’s reading. This report dashed hopes for that Inflation has reached its peak earlier this year.

“Inflation is trending higher and broader with a worse outlook,” said Seung-Won Son, professor of finance and economics at Loyola Marymount University. In Los Angeles. “The probability of a recession in the next year or so is increasing. Inflation is decimating consumers’ purchasing power. Since consumer spending accounts for about 70% of the economy, a real reduction in consumer spending will deal a huge blow to the economy.”

Mark Zandi, chief economist at Moody’s Analytics, said the typical American household spends about $460 more per month than it did last year buying the same basket of goods and services.

Energy prices are up 34.6% from last year, driven by a nearly 50% jump in gas prices over the past year. AAA’s Tracking gas prices It shows the nationwide price of a gallon of regular gas is now $4.99, after setting records in 31 of the last 32 days. The June CPI report due next month is sure to show another big jump in gas prices.

But the rise in energy prices was not limited to record gasoline prices. Electricity prices have risen 12% over the past 12 months, the largest annual increase since 2006. The price of natural gas used by consumers is up 30.2%, the biggest jump since 2008.

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Higher energy prices alone added two percentage points to the general consumer price index.

It’s not just energy that is driving prices up. The Ministry of Labor said that all the main components of the index showed an increase in prices.

prices Buying food to eat at home It rose 11.9%, the largest increase in 12 months since 1979, as eggs rose 32.2%, milk 15.9%, and poultry 16.6%.

The Shelter Index, which measures rents and other housing costs, posted a 5.5% increase, its largest gain in the 12 months since 1991. While that increase may not be as large as the double-digit price hike in other categories, the money that usually What consumers spend on their homes, whether renting or buying, is the biggest spend they spend each month.

Used car prices are on the rise again, which has shown signs of abating with monthly declines over the past three months, driving up prices by 16.1% over the past 12 months. Meanwhile, new car prices increased by 12.6% over the same period. A shortage of computer chips has curbed production at automakers, and this limited inventory is responsible for the high prices.

Strong demand for air travel at the beginning summer travel season he is too raise tickets, which recorded a monthly jump of 12.6% in May, the third consecutive monthly increase than 10%. In the past 12 months, airfares are up 37.8% and travel fares in May are 21.7% higher than they were in May 2019, before the pandemic brought air travel demand to a near halt.
The continued high pace of inflation means that the Fed is sure to continue to raise interest rates aggressively when it meets next week. at the May meeting The Federal Reserve raises interest rates By half a percentage point, the first such move in 22 years. Another rise of half a point is likely at next week’s meeting, With some forecasters now Calls to raise three-quarters of a point In light of Friday Report.
But there are concerns that a Fed monetary tightening could happen The US economy plunges into recession. This has been a major factor in Sharp decline in US stock prices In recent months it has wiped out a great deal of family wealth. stock was sharply Again on Friday after the inflation reading.

“Inflation is proving to be more persistent than was widely believed a year ago, when the temporary password was the buzzword,” said Jim Beard, chief investment officer at Planet Moran Financial Advisors. “The two main questions now? How far will the Fed go to hit inflation, and how far can the Fed go without pushing the economy into recession?”

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And while the inflation report brought fresh attacks on the Biden administration from Republicans, the White House sought to blame the worst of inflation on high oil and gasoline prices after Russia’s invasion of Ukraine.

“Today’s inflation report confirms what Americans already know. Putin’s price hike is hitting America hard,” President Joe Biden said at the Port of Los Angeles, where he paused for a regional summit to discuss what his team considers the most pressing current issue. Price hikes on everything from gas to groceries.

Biden sought to acknowledge the pain Americans feel, explain how he was looking for a solution to it, and blame others.

“I understand,” Biden said. “Inflation is a real challenge for American families.”

He criticized conglomerates of shipping companies for raising prices and oil companies to buy back their shares, and singled out the giant oil company Exxon for making “more money from God” last year.

CNN’s Kevin Liptak contributed to this report.

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