U.S. Inflation Hits New 40-Year High as Price Increases Spread

By CHRISTOPHER RUGABER AP Economics Writer

The prices of gas, food and most other goods and services jumped in May, raising inflation to a new four-decade high and giving American households no respite from rising costs.

Consumer prices surged 8.6% last month from a year earlier, faster than April’s year-over-year increase of 8.3%, the Labor Department said Friday. The new inflation figure, the highest since 1981, will heighten pressure on the Federal Reserve to continue raising interest rates aggressively.

On a month-to-month basis, prices jumped 1% from April to May, much faster than the 0.3% increase from March to April. Contributing to that surge were much higher prices for everything from airline tickets to restaurant meals to new and used cars.

Friday’s report underscored fears that inflation is spreading well beyond energy and goods whose prices are being driven up by clogged supply chains and Russia’s invasion of Ukraine. It also sent stock prices tumbling. The increased pressure on the Fed to raises rates even faster — which means higher-cost loans for consumers and businesses — will raise the risk of a recession, too.

“Virtually every sector has higher-than-normal inflation,” said Ethan Harris, head of global economic research at Bank of America. “It’s made its way into every nook and cranny of the economy. That’s the thing that makes it concerning, because it means it’s likely to persist.”

Gas prices have soared nearly 50% in one year. The national average price at the pump reached $4.99 Friday, according to AAA, edging closer to an inflation-adjusted record high of $5.40.

The cost of groceries surged nearly 12% last month from a year earlier, the biggest such increase since 1979. Rising prices for grain and fertilizer after Russia’s war against Ukraine, is intensifying that rise. Restaurant prices jumped 7.4% in the past year, the largest 12-month gain since 1981, reflecting higher costs for food and workers.

Employers face immense pressure to raise pay in a job market that remains robust, with low unemployment, few layoffs and near-record job openings. But while average wages are rising at their fastest pace in decades, they aren’t increasing fast enough for most workers to keep pace with inflation.

Housing costs are still climbing. The government’s shelter index, which includes rents, hotel rates and a measure of what it costs to own a home, increased 5.5% in the past year, the most since 1991.

Airline fares are up nearly 38% in the past year, the sharpest such rise since 1980.

Rampant inflation is imposing severe pressures on families. Lower-income and Black and Hispanic Americans, in particular, are struggling because, on average, a larger proportion of their income is consumed by necessities.

The Fed has signaled that it will raise its key short-term rate by a half-point — double the size of the usual hike — next week and again in July.

Surveys show that Americans see high inflation as the nation’s top problem, and most disapprove of President Joe Biden’s handling of the economy. Congressional Republicans are hammering Democrats on the issue in the run-up to midterm elections this fall.

On Friday, Biden responded to the latest figures in a speech at the Port of Los Angeles, which is now moving a record amount of cargo under an agreement the White House has shepherded. Yet even as the number of ships waiting to unload at the port has dropped sharply, inflation has not.

“My administration,” the president said, “is going to continue to do everything we can to lower the prices to the American people.”

In the coming months, prices in the United States may ease somewhat. Some large retailers, including Target, Walmart and Macy’s, are now stuck with too much of the patio furniture, electronics and other goods that suddenly are no longer in demand. Target said it’s cutting prices due to mounds of unsold inventory.

Though Americans have soured on the economy, they have largely kept up their spending. They are increasingly turning to credit cards, with total card debt rising sharply in April, the Fed reported, though such debt has only barely surpassed pre-pandemic levels.

How long these trends — higher wages, extra savings and rising card debt — enable Americans to keep spending will help determine whether a recession can be avoided. To cool inflation, spending growth must be slowed.

For lower-income Americans, there are signs it’s already slowing. Sales are weakening at retailers that cater to budget-conscious shoppers, like dollar stores. Walmart said customers are shifting down to cheaper items.

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