(Headline USA) Surging prices for gas, food and rent catapulted U.S. inflation to a new four-decade peak in June, further pressuring households and likely sealing the case for another large interest rate hike by the Federal Reserve, with higher borrowing costs to follow.
That, in turn, is likely to trigger a recession, resulting in lost jobs that will make the painful economic spiral even worse.
Consumer prices soared 9.1% compared with a year earlier, the government said Wednesday, the biggest yearly increase since 1981, and up from an 8.6% jump in May.
On a monthly basis, prices rose 1.3% from May to June, another substantial increase, after prices had jumped 1% from April to May.
The ongoing price increases underscore the brutal impact that Democrat President Joe Biden’s policies have inflicted on many families, with the costs of necessities, in particular, rising much faster than average incomes.
Lower-income and black and Hispanic Americans have been hit especially hard, because a disproportionate share of their income goes toward such essentials as housing, transportation and food.
Excluding the volatile food and energy categories, so-called core prices rose 0.7% from May to June, the biggest such increase in a year. And compared with 12 months earlier, core prices jumped 5.9% in June, down from a recent year-over-year high of 6.4% in March but still exceedingly high.
While the Biden administration continued its longstanding efforts to deny the problem and deflect blame for it, growing malaise has threatened to derail the Democrat leader, with even sympathetic left-wing media starting to call for the president’s ouster.
On Wednesday, the radically propagandist Associated Press conceded that gas prices—which began to rise as a result of Biden’s increased regulation and executive actions undermining America’s energy independence—were a primary driver in the surging inflation.
The Biden administration’s multi-trillion-dollar American Rescue Plan, on top of earlier pandemic stimulus packages during the Trump administration, also drove up additional US debt and spending, leading to a massive flood of currency from the Treasury Department that devalued existing dollars.
Some economists have held out hope that inflation might be reaching or nearing a short-term peak. Gas prices, for example, have fallen from the eye-watering $5 a gallon reached in mid-June to an average of $4.63 nationwide Wednesday—but still nearly double what they were at the start of Biden’s presidency.
Policymakers—who spent much of last year claiming the problem was “transitory”—now hope that a drop in gas costs could help slow inflation for July and possibly August.
Still, the breadth of the price gains shows how rising costs have seeped into nearly every corner of the economy.
- Grocery prices have jumped 12.2% compared with a year ago, the steepest such climb since 1979.
- Rents have risen 5.8%, the most since 1986.
- New car prices have increased 11.4% from a year earlier.
- Airline fares, one of the few items to post a price decline in June, are nevertheless up 34% from a year earlier.
- From May to June, the cost of dental services surged 1.9%, the biggest one-month increase since record-keeping began in 1995.
The spike in inflation has diminished consumers’ confidence in the economy, sent Biden’s approval ratings tumbling and posed a major political threat to Democrats in the November congressional elections.
Forty percent of adults said in a June AP-NORC poll that they thought tackling inflation should be a top government priority this year, up from just 14% who said so in December.
Housing costs have also risen sharply. A shortage of houses for sale has kept prices high just as mortgage rates have also soared.
With many people priced out of the market for houses and looking instead to rent, demand for apartments has sent rental rates beyond affordable levels. The average cost of new leases has jumped 14% in the past year, according to real estate brokerage Redfin, to an average of $2,016 a month.
Rents as measured by the government’s inflation index have risen more slowly because they include all rents, including existing leases. But economists expect the rising expense of new leases to send the government’s inflation measure higher in coming months.
The persistence of high inflation has unnerved Fed Chair Jerome Powell and other Fed officials, who are engaged in the fastest series of rate hikes since the late 1980s to try to slow the price spikes.
The central bank is expected to raise its key short-term rate later this month by a hefty three-quarters of a point, as it did last month, with potentially more large rate hikes to follow.
Powell has stressed that the central bank wants to see “compelling evidence” that inflation is slowing before it would dial back its rate hikes. Such evidence would need to be a “series of declining monthly inflation readings,” Powell said at a news conference last month.
Many economists worry that the Fed’s drive to quell inflation will cause it to tighten credit too aggressively even while the economy, by some measures, is slowing. Much higher borrowing costs could trigger a recession, while some argue that one may already be upon us.
Consumers have started to pull back on spending, home sales are falling as mortgage rates rise and factory output slipped in May.
While steady job growth points to an economy that is still expanding, many of the jobs are those that were lost due to pandemic shutdowns. And rising unemployment rates signal that some remain disincentivized from rejoining the workforce after a sustained leave of absence, with government welfare and subsidies possibly to blame.
Inflation has spiked overseas as well. It reached 9.1% in the United Kingdom in May, the highest level in four decades, driven mostly by higher gas and food prices. Annual inflation in the eurozone’s 19 countries hit 8.6% in June, surging past the 8.1% recorded in May. Inflation is now at its highest level since recordkeeping for the euro began in 1997.
Adapted from reporting by the Associated Press