Inflation rises at fastest pace in 40 years, driven by record gas prices

Record gas prices pushed inflation to 8.6% in the 12 months through May, above the pace of April, according to the latest Consumer Price Index, the government’s basic measure of inflation.

The CPI core reading, which excludes volatile food and energy prices, registered a 6% increase over the same period, higher than the the previous month’s level. Both readings are among the biggest price jumps experienced by consumers since 1981.

Overall, the increases were larger than economists had anticipated, who had expected prices to rise 8.3% in the 12 months ending in May, which would match the April reading. This report dashed hopes that inflation had peaked earlier this year.

“Inflation is rising and expanding with a worsening outlook,” said Sung Won Sohn, a professor of finance and economics at Loyola Marymount University. In Los Angeles. “The likelihood of a recession next year is increasing. Inflation is eating away at consumers’ purchasing power. As consumer spending accounts for about 70% of the economy, a real decrease in consumer spending would be a huge blow to the economy.” . economy.”

The typical American family is spending about $460 more a month than they did last year to buy the same basket of goods and services, said Mark Zandi, chief economist at Moody’s Analytics.

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

But energy price increases have not been limited to record gasoline prices. Electricity prices have risen 12% in the last 12 months, the biggest annual increase since 2006. And the price of natural gas used by consumers is up 30.2%, the biggest jump since 2008.

Higher energy prices alone added 2 percentage points to the overall CPI.

It’s not just energy that’s driving up prices. The Labor Department said that almost all of the main components that make up the index showed price increases.

prices for food bought to eat at home rose 11.9%, the biggest increase in 12 months since 1979, with eggs 32.2%, milk 15.9% and poultry 16.6%.

The Shelter Index, which measures rent and other housing costs, posted a 5.5% increase, its biggest 12-month gain since 1991. While that may not be as big of an increase as double-digit price increases in In other categories, the money consumers spend on their home, whether renting or buying, is typically the biggest expense they make each month.

Used car prices, which had been showing signs of moderating with monthly declines over the past three months, have risen again, pushing prices up by 16.1% in the last 12 months. Meanwhile, new car prices rose 12.6% over the same period. A shortage of computer chips has put a brake on production at automakers, and this limited stock is responsible for rising prices.

Strong demand for air travel at the start of the summer travel season is also pushing airfares up, which saw a one-month jump of 12.6% in May, the third consecutive monthly increase of more than than 10%. Over the past 12 months, airfares are up 37.8% and fares in May are 21.7% higher than in May 2019, before the pandemic nearly brought demand for air travel to a halt.
The continued high pace of inflation means the Federal Reserve is sure to continue to aggressively raise interest rates when it meets next week. At its May meeting, the Fed raised rates by half a percentage point, the first such move in 22 years. Another half-point rise is likely at next week’s meeting, with some forecasters now asking for a three-quarter-point walk in the light of friday report.
But there are concerns that the Fed’s monetary tightening could plunge the US economy into recession. That was a major factor in the sharp decline in US stock prices in recent months, which has wiped out much of household wealth. Stocks fell sharply again on Friday following the inflation reading.

“Inflation is proving to be more persistent than was believed a year ago, when transitory was the watchword,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “The two key questions now? How far will the Fed go to bring down inflation and how far can the Fed go without pushing the economy into recession?”

While the inflation report brought fresh attacks on the Biden administration from Republicans, the White House sought to blame the worst of inflation on rising oil and gasoline prices after Russia invaded Ukraine.

“Today’s inflation report confirms what Americans already know. : High prices on everything from gas to groceries.

Biden sought to acknowledge the pain Americans are feeling, explain how he was trying to resolve it, and blame others.

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

He criticized shipping conglomerates for raising prices and oil companies for their share buybacks, singling out oil giant Exxon for making “more money than God” last year.

— Kevin Liptak of CNN contributed to this report.

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