US inflation jumps again in June, raising risks to economy

By CHRISTOPHER RUGABER
AP Economics Writer

WASHINGTON (AP) — U.S. inflation hit a new four-decade high in June on rising gasoline, food and rent prices, squeezed household budgets and pressure on the Federal Reserve to raise interest rates aggressively – trends that increase the risk of a recession.

The government’s consumer price index has climbed 9.1% over the past year, the biggest annual increase since 1981, with almost half the increase due to rising costs of energy.

Low-income and black and Hispanic Americans have been particularly hard hit, as a disproportionate share of their income is spent on essentials such as transportation, housing and food. But with the cost of many goods and services rising faster than average incomes, a large majority of Americans are feeling the pinch in their daily routines.

For Marcia Freeman, 72, who is retired and living on a pension, there is no escaping rising expenses.

“Everything is going up, including cheaper items like store brands,” said Freeman, who visited a food bank near Atlanta this week to try to control her grocery costs.

Accelerating inflation is also a thorny issue for the Federal Reserve. The Fed is already engaged in the fastest round of interest rate hikes in three decades, which it hopes will calm inflation by curbing consumer and business borrowing and spending.

The US economy contracted in the first three months of the year, and many analysts believe the trend continued into the second quarter.

“Fed rate hikes do what they’re supposed to do, which is kill demand,” said Megan Greene, chief global economist at the Kroll Institute. “The thing is if they kill too many and we get a recession.”

The likelihood of bigger rate hikes this year pushed stock indices lower in afternoon trading. The central bank is expected to raise its key short-term rate later this month by three-quarters of a point, as it did last month.

As consumer confidence in the economy declines, President Joe Biden’s approval ratings also decline, posing a major political threat to Democrats in November’s congressional election. Forty percent of adults said in an AP-NORC poll in June that they thought tackling inflation should be a top government priority this year, down from just 14% who said so in December.

US inflation erupted as consumers unleashed a wave of pent-up spending as the pandemic waned, spurred by sweeping federal aid, ultra-low borrowing costs and savings they had accumulated while curling up. As Americans funneled their purchases into household items, like furniture, appliances and exercise equipment, supply chains tightened and prices for goods soared. Russia’s war against Ukraine has further boosted energy and food prices.

In recent months, as Covid fears have subsided, consumer spending has gradually shifted from goods to services. Yet, rather than bringing down inflation by reducing the prices of goods, the cost of furniture, cars and other items has steadily risen, while food costs, rents and other services also become more expensive.

The year-on-year jump in consumer prices last month followed an 8.6% annual jump in May. From May to June, prices rose 1.3% – the biggest monthly increase since 2005 – after prices jumped 1% from April to May.

Still, some economists held out hope that inflation could peak in the near term. Gasoline prices, for example, rose from the $5 a gallon hit in mid-June to a national average of $4.63 on Wednesday — still well above a year ago.

Shipping costs and commodity prices also began to fall, and wage increases slowed. Surveys show that Americans’ long-term inflation expectations have eased, a trend that often points to more moderate price increases over time.

“While today’s headline inflation reading is unacceptable, it is also outdated,” President Biden said Wednesday. “All major economies are struggling with this COVID-related challenge.”

The latest disappointing inflation data came out at the start of Biden’s trip to the Middle East, where he will meet with Saudi officials to discuss oil prices, among other topics.

Republican members of Congress have blamed the price hike on Biden’s economic policies, particularly his $1.9 trillion financial relief package approved in March.

There have been signs of inflation slowing down before – last summer and in April this year – only to surge again in the following months.

“There may be some relief in the July numbers – commodity prices have at least come down – but we are very, very far from normalizing inflation, and there are no tangible signs of downward momentum,” said Eric Winograd, economist at Asset Manager AB.

For now, the relentless pace of price increases has frustrated many Americans.

Delores Bledsoe, a truck driver transporting goods from Carlisle, Pa., to Wisconsin on Wednesday, said her fuel costs had tripled. “It makes me want to get out of the truck and go drive an Uber,” said Bledsoe, who lives in Houston. “It’s depressing.”

Some people criticize companies for using inflation as a hedge to raise prices beyond the amount they need to cover their own higher costs.

“I feel the pain of inflation every day,” Susana Hazard said outside a grocery store in New York this week. “Every day everything goes up and up, more than inflation – they adjust prices. Because even though there is no inflation, they have raised prices.

Most economists say that rising business prices are, at most, one of the many causes of runaway inflation, not the main one.

Housing and rental costs are rising steadily as strong job gains encourage more Americans to move on their own. Rents are up 5.8% from a year ago, the most since 1986.

And the cost of many goods, such as furniture, continues to rise at a rapid rate, even as retailers such as Walmart and Target said they were overstocked and many analysts expected prices to rise. goods go down. Furniture prices are up 13% from a year ago.

Food prices jumped 12% from a year ago, the biggest such rise since 1979. The biggest shock was energy prices, which soared 7.5% May to June only. Gas prices have skyrocketed nearly 60% from a year ago.

Excluding the volatile food and energy categories, so-called core prices rose 0.7% from May to June, the largest such increase in a year. Core prices jumped 5.9% from a year ago.

Inflation is climbing well beyond the United States. with 71 million people pushed into poverty in the three months following Russia’s invasion of Ukraine, the United Nations Development Program announced last week.

The economic damage of the war was particularly severe in Europe, with its reliance on Russian oil and natural gas, which squeezes businesses and consumers with significantly higher bills for utilities, groceries, gasoline and more. Inflation hit decades-high levels of 8.6% last month in the 19 countries that use the euro and 9.1% in the UK in May.

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AP Writer Mark Scolforo contributed to this report from Carlisle, Pennsylvania. APTV Senior Producer David R. Martin contributed reporting from New York.