Record gas prices brought inflation to 8.6% in the 12 months ending in May, higher than in April, according to the latest consumer price index, the government’s main measure of inflation.
The basic consumer price index, which eliminates volatile food and energy prices, reported a 6% increase over the same period, higher than the previous month. Both readings are among the biggest price spikes seen by consumers since 1981.
Overall, the increases were higher than economists’ forecasts, which expected prices to jump 8.3% in the 12 months ending in May, which would coincide with the April reading. This report shattered hopes that inflation peaked earlier this year.
“Inflation is getting higher and wider with deteriorating prospects,” said Sung Won Son, a professor of finance and economics at Loyola Marymount University in Los Angeles. “The likelihood of a recession next year or so is growing. Inflation is eating away at consumers’ purchasing power. As consumer spending accounts for about 70% of the economy, a real reduction in consumer spending would deal a major blow to the economy. “
A typical American household spends about $ 460 more each month than last year to buy the same basket of goods and services, said Mark Zandi, chief economist at Moody’s Analytics.
Energy prices rose 34.6% year-on-year, driven by a nearly 50% jump in gas prices last year. AAA gas price monitoring shows that the price of a gallon of ordinary gas across the country 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 by 12% in the last 12 months, the biggest annual increase since 2006. And the price of natural gas used by consumers has risen by 30.2%, the biggest jump since 2008.
Only higher energy prices added 2 percentage points to the overall CPI.
It’s not just energy that raises prices. The Ministry of Labor said that almost all the main components that make up the index show higher prices.
Prices for food purchased at home rose by 11.9%, the largest 12-month increase since 1979, with eggs rising by 32.2% and milk by 15.9%. and poultry by 16.6%.
The shelter index, which measures rents and other housing costs, rose 5.5%, its biggest gain in 12 months since 1991. Although this may not be as large as the double-digit increase in prices in other categories, the money consumers spend on their home, whether they rent or buy, is usually the biggest expense they make each month.
The prices of used cars, which showed signs of moderation with monthly declines in the last three months, rose again, raising prices by 16.1% in the last 12 months. Meanwhile, new car prices rose 12.6% over the same period. The shortage of computer chips has limited production in carmakers, and this limited supply has led to rising prices.
Strong demand for air travel at the beginning of the summer travel season also boosted air ticket prices, which jumped 12.6% in May, a third consecutive monthly increase of more than 10%. In the last 12 months, airline tickets have increased by 37.8%, and fares in May were 21.7% higher than in May 2019, before the pandemic almost stopped the demand for air travel. The continuing high rate of inflation means that the Federal Reserve is anything but, but it will certainly continue to raise interest rates aggressively when it comes together next week. At its meeting in May, the Fed raised interest rates by half a percentage point, the first such move in 22 years. There is probably another half-point increase at next week’s meeting, with some forecasters now calling for a three-quarters-point increase in light of Friday’s report. But there are fears that tightening the Fed’s monetary policy could plunge the US economy into recession. This has been a major factor in the sharp drop in US stock prices in recent months, destroying much of household wealth. Shares fell sharply again on Friday after inflation.
“Inflation is proving more resilient than previously thought, when transition was the buzzword,” 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 new attacks on the Biden administration by Republicans, the White House tried to blame the worst inflation on rising oil and gasoline prices after Russia invaded Ukraine.
“Today’s inflation report confirms what Americans already know. Putin’s rising prices are hitting Americans hard,” said President Joe Biden at the Port of Los Angeles, where he took a break from a regional summit to discuss what his team was up to. considers it the most pressing current issue: high prices for everything from gas to food.
Biden tried to acknowledge the pain Americans are experiencing, explain how he seeks to resolve it, and shift the blame onto others.
“I see,” Biden said. “Inflation is a real challenge for American families.”
He criticized shipping conglomerates for raising prices and oil companies to buy back shares, citing oil giant Exxon for making “more money from God” last year.
– Kevin Liptak of CNN contributed to this report.
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