US inflation hits new 40-year high, spreads as prices rise

NEW DELHI: Prices of gas, food and most other goods and services jumped in May, pushing inflation to a new four-decade high and providing no respite from rising costs for American households.

Consumer prices rose 8.6% last month compared to a year ago, the Labor Department said Friday, faster than April’s year-over-year increase. The new inflation figure, the highest since 1981, will increase pressure on the Federal Reserve to aggressively raise interest rates. Read More: LIC Jeevan Umang Policy: Here’s How To Get Rs 36,000 Pension By Saving Rs 45 A Day

On a month-to-month basis, prices increased by 1% from April to May, much faster than the 0.3% increase from March to April. Contributing to that boom was enormous for everything from airline tickets to restaurant meals to new and used cars. Those price spikes also exacerbated so-called “core” inflation, a measure that excludes volatile food and energy prices. In May, core prices jumped 0.6% for the second straight month. They are now up 6% where they were a year ago. Read more: As repo rate rises, these banks hike interest rates, check which lender offers the most affordable loan

Friday’s report underscored fears that inflation is spreading beyond energy and commodities whose prices are being driven by closed supply chains and Russia’s invasion of Ukraine. It also drove stock prices down. Pressure on the Fed to raise rates even more quickly – which means higher-cost loans for consumers and businesses – will also increase recession risk.

“There is higher-than-normal inflation in virtually every region,” said Ethan Harris, head of global economic research at Bank of America. “It has made its way into every nook and corner of the economy. That’s what worries it, because it means it’s likely to persist. ,

Gas prices rose 4% in May itself and have risen by almost 50% in a year. The national average price at the pump peaked at $4.99 on Friday, approaching an inflation-adjusted record high of $5.40, according to AAA.

The price of groceries rose nearly 12% last month from a year earlier, the biggest such increase since 1979. Rising grain and fertilizer prices after Russia’s war against Ukraine are accelerating that growth. Restaurant prices rose 7.4% over the past year, the biggest 12-month gain since 1981, reflecting higher costs for food and workers.

With low unemployment, few layoffs and nearly record job openings, employers face enormous pressure to increase wages in the job market. But while average wages are growing at their fastest pace in decades, they are not growing fast enough for most workers to keep pace with inflation. Many families earned savings from government stimulus aid during the pandemic and now have to draw on those savings to pay the bills.

Housing costs are still climbing. The government’s shelter index, which includes rents, hotel rates and a measure of the cost of owning a home, rose 5.5% in the past year, the highest since 1991. Airline fares have risen nearly 38% over the past year, the fastest such increase since 1980.

High inflation is putting a lot of pressure on the families. Low-income and black and Hispanic Americans, in particular, are struggling because, on average, a large portion of their income consumes necessities.

In light of Friday’s inflation reading, the Fed is on course to implement the fastest series of interest rate hikes in three decades. By sharply increasing borrowing costs, the Fed hopes to cool spending and growth to contain inflation without putting the economy into recession. It will be a difficult balancing act.

The Fed has indicated it will raise its key short-term rate by half a point — twice the size of the normal hike — next week and again in July. Some investors expected the Fed to slow its rate hikes to a quarter-point increase or perhaps even halt its credit tightening when it meets in September. But with inflation warming up, investors now expect another half-point hike in September, the fourth since April.

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.

On Friday, Biden responded to the latest figures in a speech at the Port of Los Angeles, which is now moving a record amount of cargo under a deal reached by the White House. Yet while the number of ships waiting to be unloaded at port has declined sharply, inflation has not.

“My administration,” the president said, “will continue to do everything we can to bring down prices to the American people.”

Rising prices have forced Rocky Harper of Tucson, Arizona, to start doing gig work for delivery companies on top of his regular full-time job with a package delivery service. His main job pays $800 a week, he said, which “used to be really good money and is now above dirt-poor.”

Harper, 44, said she and her fiancé are delaying the wedding because they just can’t stand it. He has cut Netflix and Hulu. His car’s catalytic converter was recently stolen—an increasingly common theft—for the rare metals they contain whose price has skyrocketed. The cost of one repair is $1,300.

“With food, gas and rent – holy cow,” he said. “I’m working an enormous amount of overtime to make it, just to put it together.”

A World Bank report this week clarified that high inflation is a global problem threatening slowing economies around the world. For the 19 countries that use the euro currency, inflation soared to a record 8.1% last month due to rising food and fuel prices, prompting the European Central Bank to announce that it is going to increase for the first time in 11 years, starting in July. Will raise interest rates. And then in September.

In the coming months, prices in the United States may drop somewhat. Some big retailers, including Target, Walmart, and Macy’s, are now stuck with too much patio furniture, electronics, and other items that are suddenly not in demand. Target said it was cutting prices because of a plethora of unsold goods.

Although Americans have soured the economy, they have largely maintained their spending. They are increasingly turning to credit cards, with total card debt rising sharply in April, the Fed reported, although such debt has only passed pre-pandemic levels.

How long these trends – higher wages, excess savings and rising card debt – enable Americans to keep spending, will help determine whether a recession is avoidable. To pacify inflation, spending growth has to slow down.

For low-income Americans, there are signs it is already slowing. Walmart said customers are turning to cheaper items, while increasing sales at retailers that cater to budget-conscious shoppers, such as dollar stores.

Research from the Bank of America Institute, which uses anonymous data from the credit and debit card accounts of millions of its customers, shows gasoline is eating up a substantial portion of the budget.

For low-income households — defined as those earning less than $50,000 — spending on gas reached nearly 10% of all spending on credit and debit cards in the last week of May, the institute said. This is up from about 7.5% in February, a huge increase in such a short period.

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

The company’s chicken BLTs now cost 20% more than they were before the pandemic. McDowell said he is grappling with the highest prices for supplies and workers he has ever faced. They feel that they may have to increase the prices again by 10% to 20%.

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