WASHINGTON (AP) — The inflation rate, closely watched by the Federal Reserve, rose 6.3 percent in May from last year, unchanged from April’s level.
A Commerce Department report released Thursday provided the latest evidence that excruciatingly high inflation is putting pressure on American households and hurting low-income families and people of color in particular.
The report also noted that consumer spending rose slowly by 0.2 percent from April to May. Consumer spending is starting to weaken due to high inflation. But it continues to fuel inflation, particularly as demand for services rises, from airfare and hotel rooms to restaurant meals and new and used vehicles.
“It’s not surprising that US consumers are cutting back on spending because of the high cost of almost everything,” Jennifer Lee, senior economist at BMO Capital Markets, said in a research note. He noted that after adjusting for inflation, consumer spending fell 0.4% from April to May.
On a monthly basis, Thursday’s report showed prices rose 0.6% from April to May, compared to a 0.2% increase from March to April.
Chronic high inflation has become a major economic and political threat to President Joe Biden and the Democrats ahead of the midterm elections. According to a new study by the Associated Press-NORC Center for Public Affairs Research, 79% of US adults describe the economy as bad. Inflation reflects a healthy unemployment rate of 3.6 percent as a benchmark, especially for Americans struggling with high gas and food prices.
In response, the Fed launched a series of aggressive rate hikes designed to slow growth by making borrowing more expensive, but could also trigger a recession. Two weeks ago, the Fed increased its core rate by three-quarters of a percentage point – the biggest increase in nearly three decades – and marked another significant rate hike.
The Fed tends to track Thursday’s inflation gauge, called the Personal Consumption Price Index, and closely follows the government’s more popular consumer price index. While the components of the two indices differ—the CPI tends to put more weight on gas and housing costs, and shows higher inflation—the two indicators say the same thing: inflation is rising dangerously.
The report also showed that consumer income rose 0.5 percent in the April-May period, slightly exceeding inflation. Also, the savings rate rose slightly to 5.4 percent last month, though still below its peak of around 34 percent in April 2020. Precaution against COVID-19.
The rapid rise in prices is the result of the unexpected rapid economic recovery from the 2020 pandemic recession. Motivated by government stimulus reviews recording low borrowing rates during the pandemic and piling up while staying at home, consumers began spending money where businesses were catching up. taken by surprise and overloaded factories, ports and freight yards. As a result, shortages of goods and labor resulted in price increases.
The Fed has been slow to understand the severity of the inflation threat, seeing it as a temporary result of supply chain bottlenecks. But price increases have proven unstoppable, and the central bank is now trying to catch up with massive rate hikes that could ultimately hurt the economy.
Due to high inflation, consumers are increasingly concerned about the economy. Prices rose faster than profits and wiped out their purchasing power. Consumer confidence hit a 16-month low and Americans’ outlook was overshadowed by concerns about inflation, particularly gas and food prices.
Source: Breitbart
