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US inflation hits a new 40-year high at 8.6% in May

WASHINGTON — The cost of gasoline, groceries and other necessities soared in May, pushing inflation to a new four-decade high and giving American households no respite from rising costs.

Consumer prices rose 8.6% last month from 12 months earlier, faster than April’s 8.3% year-on-year rise, the Labor Department said on Friday.

On a monthly basis, prices rose 1% from April to May, a steep increase from the 0.3% increase from March to April. Significantly higher gas prices accounted for most of this increase.

America’s rampant inflation puts great pressure on families, forcing them to pay much more for groceries, gas and rent, and reducing their ability to afford everything from haircuts to electronics. Low-income and Black and Hispanic Americans in particular are struggling because, on average, a larger portion of their income is spent on necessities.

At the same time, inflation has shown some signs of slowing down and economists expect it to fall this year, albeit not by much. Some analysts have forecast that the inflation indicator reported by the government on Friday – the consumer price index – could fall below 7% by the end of the year. In March, the CPI hit 8.5% yoy, the highest such rate since 1982.

High inflation has also forced the Federal Reserve into what is likely its fastest string of rate hikes in three decades. By aggressively raising the cost of borrowing, the Fed hopes to cool spending and growth enough to contain inflation without plunging the economy into recession. It will be a difficult balancing act for the central bank.

Polls show that Americans view high inflation as the country’s biggest problem and most disapprove of President Joe Biden’s handling of the economy. Republicans in Congress are hammering Democrats on the issue ahead of this fall’s midterm elections.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

WASHINGTON (AP) — The cost of gasoline, groceries and other necessities are likely to have skyrocketed in May, giving Americans no respite from the worst bout of inflation in four decades.

Economists have forecast consumer prices to have risen 8.2% year-on-year last month, according to data provider FactSet. That would be little less than the 8.3% year-on-year rise in April and the 8.5% rise in March, the highest since 1982.

And on a monthly basis, prices are expected to have risen 0.7% in April-May, up sharply from a 0.3% rise in March-April. The acceleration would almost certainly be due to gas prices, which were down in April but are up more than 10% in May alone and have since averaged nearly $5 a gallon nationwide.

America’s rampant inflation puts families under great financial pressure, forcing them to pay much more for things like groceries, gas and rent, and reducing their ability to afford discretionary items from haircuts to entertainment. Low-income and Black and Hispanic Americans in particular are struggling because, on average, a larger portion of their income is spent on necessities.

High inflation has also forced the Federal Reserve into what is likely its fastest string of rate hikes in three decades. By aggressively raising the cost of borrowing, the Fed hopes to cool spending and growth enough to contain inflation without plunging the economy into recession. It will be a difficult balancing act for the Fed.

Polls show that Americans view high inflation as the country’s biggest problem and that a large majority disapprove of President Joe Biden’s handling of the economy. Republicans in Congress are hammering the Democrats on this issue ahead of the midterm elections this fall.

Inflation has remained high, although the sources of rising prices have shifted. Initially, robust demand for goods from Americans stuck at home for months after the COVID outbreak caused bottlenecks and supply chain problems, pushing up prices on cars, furniture and appliances.

Now, as Americans resume spending on services, including travel, entertainment and dining out, the cost of airline tickets, hotel rooms and restaurant meals has skyrocketed. Russia’s invasion of Ukraine has further pushed up oil and natural gas prices. And as China now eases strict COVID lockdowns in Shanghai and elsewhere, more of its citizens are driving, pushing oil prices even higher.

Nonetheless, Friday’s consumer inflation report may contain some encouraging signs. Economists expect “core” inflation – which excludes volatile food and energy prices – to slow. Economists have estimated that core prices rose 5.9% year-on-year in May, compared to an annual rate of 6.2% in April. It would be the second month in a row this number has weakened. Economists follow core inflation closely because it is considered a better measure of future price changes.

The cost of used cars, which had skyrocketed in 2020 and 2021 when semiconductor shortages severely reduced availability of new cars, has fallen for three straight months. And the cost of clothing and appliances fell in April.

Commodity prices are likely to fall further in the coming months. Many large retailers, including Target, Walmart and Macy’s, have reported that they are now stuck with too much patio furniture, electronics and other goods they ordered when those items were in higher demand and are having to discount them.

Even so, rising gas prices are eroding the finances of millions of Americans. Pump prices are averaging nearly $5 a gallon nationwide, nearing the inflation-adjusted record of about $5.40 set in 2008.

Research from the Bank of America Institute, which uses anonymous data from millions of its customers’ credit and debit card accounts, shows that spending on gas is eating up a larger chunk of consumers’ budgets and crowding out their ability to purchase other items.

For low-income households — defined as households earning less than $50,000 — spending on gasoline accounted for nearly 10% of all credit and debit card spending in the last week of May, the institute said in a report this week. That’s up from about 7.5% in February, a steep rise in such a short period of time.

The institute found that the spending of all bank customers on durable goods such as furniture, electronics and DIY items has fallen sharply compared to the previous year. But their spending on plane tickets, hotels and entertainment has continued to increase.

Economists have pointed to this shift in spending from goods to services as a trend that should help bring inflation down by the end of the year. But as wages continue to rise for many workers, so do the prices of services.

Copyright © 2022 by The Associated Press. All rights reserved.

https://abc13.com/inflation-consumer-prices-united-states-us/11944757/ US inflation hits a new 40-year high at 8.6% in May

Dais Johnston

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