U.S. inflation accelerated, with consumer prices up 8.6 percent in the year through May, a pace that threatens many Americans’ spending power
U.S. inflation accelerated, with consumer prices up 8.6 percent in the year through May, a pace that threatens many Americans’ spending power.
Prices climbed 8.6 percent in the year through May, a re-acceleration of inflation that makes it increasingly difficult for consumers to afford everyday purchases and poses a major challenge for the Federal Reserve and White House as they try to secure a strong and stable economy.
The Consumer Price Index climbed 1 percent from April — far more quickly than in the previous month — and by 0.6 percent after stripping out food and fuel prices, which can be volatile. That so-called core inflation reading matched April’s reading.
Fed officials are watching for signs that inflation is cooling on a monthly basis as they try to guide price increases back down to their goal, but Friday’s report offered more reason for worry than comfort. The headline inflation rate was the fastest since late 1981, as a broad array of products and services including rents, gas, used cars, and food became sharply more expensive.
Policymakers aim for 2 percent inflation over time using a different but related index, which is also sharply elevated. Central bankers are raising interest rates to make borrowing money more expensive, hoping to cool off consumer and business demand and give supply a chance to catch up, setting the stage for more moderate inflation.
The Fed’s attempt to temper inflation by slowing down the economy is contributing to an already sour economic mood. Consumer confidence has been sinking all year as households shoulder the burden of higher prices, and President Biden’s approval ratings have also suffered. Both Wall Street economists and small business owners increasingly worry that a recession is possible in the next year.
That glum attitude spells trouble for Mr. Biden and Democrats as November midterm elections approach. As climbing prices weigh on voters’ wallets and minds, policymakers across the administration have been clear that helping to return inflation to a more sustainable pace is their top priority, but that doing so mainly falls to the Fed.
Economists warn that wrestling inflation lower could be a slow and painful process. Production and shipping snarls tied to the pandemic have shown early signs of easing but remain pronounced, keeping products like cars and trucks in short supply. The war in Ukraine is elevating food and fuel prices, and its trajectory is unpredictable. And consumer demand remains strong, buoyed by savings amassed during the pandemic and wages that are rising quickly, albeit not enough to fully offset inflation.
“There does seem to be considerable resilience in consumer spending,” Matthew Luzzetti, chief U.S. economist at Deutsche Bank, said ahead of the report, explaining that he expects consumer prices to still be climbing at 7.3 percent over the year as of December.
While uncertainty is high, economists in a Bloomberg survey expect inflation as measured by the Consumer Price Index to remain at 6.3 percent — lower than today, but still sharply elevated — in the final quarter of 2022.
Energy prices were a major source of Americans’ inflation woes last month as attempts to increase oil production yielded little new supply and drivers began vacation road trips.
The price of gasoline rose 4.1 percent in May over the previous month, bringing the increase from a year ago to 48.7 percent. According to the Energy Information Administration, gas averaged $4.88 per gallon in the most recent weekly survey, up nearly $2 from last May and a record in nominal terms — though still below the inflation-adjusted record of about $5.50 in July 2008.
High gasoline prices disproportionately hurt lower-income drivers, who have far fewer electric vehicles and tend to drive older, less efficient cars. In recognition of the price increases, the Internal Revenue Service on Thursday took the unusual step of issuing a midyear update to the rates for mileage that taxpayers can deduct as a business expense.
Despite rising prices, Americans overall have continued to increase their mileage for travel and daily commutes, according to data published by the Department of Transportation.
As a whole, the energy price index rose 3.9 percent for the month and is 34.6 percent higher than a year ago.
Fuel oil, although a lesser contributor to the overall inflation number, rose 16.9 percent, and stands at 106.7 percent above the rate this month last year.
The stomach-churning prices result from several factors: demand returning to the global economy while supply remains stubbornly low, a widespread boycott of oil from Russia since its invasion of Ukraine and China’s decision to restrict exports of its own oil.
The White House has taken steps to keep prices in check, such as releasing a million barrels a day from the Strategic Petroleum Reserve and trying to repair relations with Saudi Arabia. But the cartel dominated by the Saudis, the Organization of the Petroleum Exporting Countries, has benefited from keeping prices high.
“Even last week, when they accelerated their production increases, the additional amount of oil they agreed to put on the market was negligible,” said Mark Finley, a former economist for BP who is now a fellow at Rice University’s Baker Institute for Public Policy.
The U.S. Department of Energy expects gasoline prices to decline in the third quarter, but as domestic inventories continue to fall and geopolitical tensions persist, that’s far from a sure bet.
New York Times
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