The U.S. inflation rate has risen to the highest level in 40 years, according to the latest consumer price index (CPI) data released by the Bureau of Labor Statistics. Annual inflation costs for May rose by 8.6%, from the 8.3% in April. The last time Americans experienced such price hikes was in 1981.
The Unrelenting Inflation Surge
The latest reports dispute the growing consensus among economists about inflation slowing down. The May CPI more than tripled the previous month’s rise to 1%, compared to the 0.2% rise from March to April. The core rate of inflation, which excludes gas and food prices, was up 0.6%.
The surging inflation rate in the U.S. continues to pile pressure on families, forcing them to pay more for their groceries, gas, and rent. The most disproportionately affected Americans are low-income earners, as most of their expenses go to necessities.
Families are also cutting back on discretionary items such as electronics and clothing as the buying power shrinks.
Gas Prices Accounted for the Largest Chunk of the Inflation Rise
Financial experts attribute the continued surge to skyrocketing energy and food prices. Prices at the pump continue to erode savings for American families. According to AAA gas prices, the average national price was $5.01 as of June 12th, 2022.
The gas prices are up 3.9% from April and more than 48.7% from a year ago. Statistics from the Bank of America Institute using anonymous data from their consumer’s credit and debit cards show spending on gas reached nearly 10% of all expenses for low-income earners.
Food Costs Show Little Signs of Cresting
Food prices increased by nearly 1.2% last month. Groceries are up more than 12% over the previous year, the largest hike since March 1981. The food index, which covers groceries and dining out, rose by 10.1% over the prior year.
The increasing prices are also evolving from the goods industry, spilling over more to the service industry. The costs of air tickets, entertainment, hotel rooms, and restaurant meals are also soaring.
More FED Hikes?
The Federal Reserve continues to fight the rising costs by aggressively increasing interest rates by 0.5 percentage points. Economists and other financial experts foresee further rate hikes.
The FED hopes to minimize consumer spending to a low level to slow inflation without pushing the economy into a recession. It’s a tough balancing act.
While increasing the borrowing rates could help tame the runaway inflation, it may spell trouble for most consumers. You may have to pay more to borrow funds to finance your home, car, or credit card debt.
The rise in inflation over the last few months is primarily due to energy and food price increases. The interest rates hike proposals from the Federal Reserve can help cushion the inflationary pressure over the coming months. Experts believe that the measures taken can lower the consumer price index below 7% by the end of the year.
This article is for information, illustrative and entertainment purposes only and does not purport to show actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular investment action.