The costs of fuel, food and other necessities in America soared during May, sending inflation to a four-decade high (1981) and giving American households no respite from rising costs.
The Labor Department said Friday that consumer prices rose 8.6% last month from the previous 12 months, faster than the 8.3% annual increase seen in April.
On a monthly basis, prices jumped 1% in May, a sharp rise from the 0.3% increase from March to April. Significantly high gas prices were the reason for most of the increase.
Some analysts predicted that the measure of inflation announced by the government on Friday – the consumer price index – might fall below 7% by the end of the year. In March, year-on-year CPI reached 8.5%, the highest rate since 1982.
Purchasing power
The purchasing power of American families recorded a significant decline, whether to fill car tanks with fuel, to shop in the supermarket, or even to buy travel cards.
Inflation slowed slightly in April although it remained at +8.3% at an annual pace, which is very close to the highest inflation levels in forty years when it reached +8.5% in March.
A group of analysts polled by Bloomberg expected an average of 8.3% in May, as well as in April.
The comparison with the previous month showed a much larger slowdown in April, at +0.3%, compared to 1.2% in March, but inflation may have accelerated once more in May; Analysts expect +0.7%.
Inflation will be “driven by…fuel and food prices,” said Ian Shepherdson, head of economics at Pantheon Macroeconomics, as well as “new increases in the cost of air transport and hotel rooms.”
sea freight cost
This very high inflation raises Biden’s fears, a few months before a decisive election due that will renew a large part of the members of Congress.
“One of the reasons for the price hike is that a handful of companies that dominate the market have increased (sea) freight rates by as much as 1,000 percent,” the US president wrote in a tweet Thursday. This is a scandal, and I call on Congress to act.”
The House of Representatives will vote next week on a text passed by the Senate in March, aimed at reducing costs and relieving pressure on supply chains by reforming unfair shipping practices, Democratic Senate Chairman Chuck Schumer announced Thursday.
The text notes that the price of a 40-foot container has increased from regarding $1,300 before the COVID-19 pandemic to $11,000 in September 2021, and Schumer said the American consumer is paying the price.
However, the Republican opposition accuses the economic policy pursued by the Democratic president of causing this unprecedented inflation since the beginning of the eighties.
Difficulties in global supply chains caused prices to rise all over the world, but this crisis intensified in the United States; Coupled with a labor shortage, generous government financial aid stimulated demand.
With the war in Ukraine, the phenomenon intensified and the prices of fuel and foodstuffs rose significantly.
curb demand
In the face of this complex situation, the US Federal Reserve still has some cards to act, most notably curbing demand by consumers and companies.
To achieve this, the central bank will gradually raise its main interest rates, which in turn prompts commercial banks to offer loans at higher rates to their customers. In this context, the Fed is expected to approve an additional increase on June 15, followed by another increase in late July.
Inflation “probably slowed in May, but price increases will remain high, which keeps the Federal Reserve on track to continue normalizing” its monetary policy, said Rubella Farooqi, head of economics at High Frequency Economics. However, addressing inflation may reflect on the US economy, which raises fears of deflation. Unemployment may also rise once more.
The World Bank warned this week of the risks of “deflationary deflation” at the global level, which means “a prolonged period of weak growth and high inflation.”
Another indicator to measure inflation will be released later this month, the PCE Price Index published by the Commerce Department and approved by the Federal Reserve. It also slowed in April, recording 6.3% at an annual rate. May figures will be released on 30 June.
(agencies)
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