US inflation hit a new 40-year high last month as gas cost soared

On a monthly basis, consumer prices rose 1% from April to May, with rising gas prices accounting for most of the increase.

WASHINGTON — The cost of gasoline, groceries and other necessities soared in May, pushing inflation to a new four-decade high and leaving 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.

Economists expect inflation to ease this year, albeit not by much. Some analysts have forecast that the index of inflation — the consumer price index — reported by the government on Friday, 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.

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 eases strict COVID lockdowns in Shanghai and elsewhere, more of its citizens are driving, pushing oil prices even higher.

Commodity prices are expected to fall 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 those earning less than $50,000 — gasoline spending reached 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.

According to the institute, the spending of all bank customers on durable goods such as furniture, electronics and do-it-yourself items has fallen compared to a year ago. 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. US inflation hit a new 40-year high last month as gas cost soared

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