By CHRISTOPHER RUGABER
AP Economics Writer
WASHINGTON (AP) — U.S. 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.
For 72-year-old Marcia Freeman, who is retired and lives off of a pension, there is no escape from rising expenses.
“Everything goes up, including cheaper items like store brands,” said Freeman, who visited a food bank near Atlanta this week to try and gain control of her grocery costs.
As consumers’ confidence in the economy declines, so have President Joe Biden’s approval ratings, posing 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.
U.S. inflation erupted amid a swift rebound from the 2020 pandemic recession. Consumers unleashed a wave of pent-up spending, spurred by vast federal aid, ultra-low borrowing costs and savings they had built up while hunkering down. As Americans channeled their purchases toward items for the home, like furniture, appliances and exercise equipment, supply chains became snarled and prices for goods soared. Russia’s war against Ukraine further magnified energy and food prices.
In recent months, as Covid fears have receded, consumer spending has gradually shifted away from goods and toward services, resulting in higher prices for vacations, restaurant meals and entertainment.
The year-over-year leap in consumer prices last month followed an 8.6% annual jump in May. From May to June, prices rose 1.3% — the largest monthly increase since 2005 —after prices had surged 1% from April to May.
Still, some economists have held out hope that inflation might be reaching 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 — still far higher than a year ago but a drop that could help slow inflation for July and possibly August.
In addition, shipping costs and commodity prices have begun to fall, and pay increases have slowed. Surveys show that Americans’ expectations for inflation over the long run have eased — a trend that often points to more moderate price increases over time.
“While today’s headline inflation reading is unacceptably high, it is also out-of-date,” President Biden said Wednesday. “All major economies are battling this COVID-related challenge.”
The latest disappointing data on inflation came out at the outset of Biden’s trip to the Middle East, where he will meet with officials from Saudi Arabian to discuss oil prices, among other subjects.
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 have been signs that inflation was slowing before — last summer, and in April of this year — only for it to surge again in subsequent months.
“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 AB.
For now, the relentless pace of price increases has frustrated many Americans, some of whom are placing blame on companies for using inflation as a cover to raise prices beyond the amount they need to cover their own higher costs.
“I feel the inflation pain every day,” Susana Hazard said this week outside a grocery store in New York City. “Every day, everything is going up and up, more than inflation — they’re price-adjusting. Because even if inflation doesn’t happen, they’ve raised the prices.”
Most economists say corporate price gouging is, at most, one of many causes of runaway inflation and not the primary one.
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. And average airline fares, one of the few items to post a price decline in June, are nevertheless up 34% from a year earlier.