US inflation surges again in June, raising risks for economy
US inflation surged to a new four-decade high in June because of rising prices for gas, food and rent, squeezing household budgets and pressuring the Federal Reserve to raise interest rates aggressively -- trends that raise the risk of a recession.
The government’s consumer price index soared 9.1% over the past year, the biggest yearly increase since 1981, with nearly half of the increase due to higher energy costs.
Lower-income and Black and Hispanic American have been hit especially hard, since a disproportionate share of their income goes toward essentials such as transportation, housing and food. But with the cost of many goods and services rising faster than average incomes, a vast majority of Americans are feeling the pinch in their daily routines.
Accelerating inflation is a vexing problem for the Federal Reserve, too. The Fed is already engaged in the fastest series of interest rate hikes in three decades, which it hopes will cool inflation by tamping down borrowing and spending by consumers and businesses.
The US economy shrank in the first three months of the year, and many analysts believe the trend continued in the second quarter.
“The Fed’s rate hikes are doing what they are supposed to do, which is kill off demand,” said Megan Greene, global chief economist at the Kroll Institute. “The trick is if they kill off too much and we get a recession.”
Republican members of Congress have blamed the higher prices on Biden’s economic policies, specifically his $1.9 trillion financial support package approved in March.
“There may be some relief in the July numbers — commodity prices have come off the boil, at least — but we are a very, very long way from inflation normalizing, and there is no tangible sign of downward momentum,” said Eric Winograd, an economist at asset manager AllianceBernstein.
For now, the relentless pace of price increases is frustrating many Americans.
Delores Bledsoe, a truck driver hauling freight from Carlisle, Pennsylvania to Wisconsin on Wednesday, said her fuel costs have tripled. “It’s making me want to get out of the truck and go drive an Uber,” said Bledsoe, who lives in Houston. “It’s depressing.”
Housing and rental costs are rising steadily as solid job gains encourage more Americans to move out on their own. Rents have risen 5.8% compared with a year ago, the most since 1986. And the cost of decorating homes is still increasing at a rapid pace — furniture prices are up 13% from a year ago — even as retailers such as Walmart and Target experience rising inventories, which should help lower prices.
The biggest shock has been energy prices, which soared 7.5% just from May to June. Gas prices have skyrocketed nearly 60% compared with a year ago.
Excluding the volatile food and energy categories, so-called core prices rose 0.7% from May to June, the biggest such spike in a year. Core prices jumped 5.9% from a year ago.