US inflation soared to a new four-decade high in May, defying hopes that price pressures had peaked and deepening President Joe Biden’s policy woes as Americans struggle to contain the ever-rising cost of healthcare to cover basic necessities such as groceries and petrol.
Consumer prices in the world’s largest economy have risen at the fastest pace since 1981, with gas prices at the pump hitting new records every day amid the fallout from the Russian invasion of Ukraine and ongoing supply chain challenges from the Covid-19 outbreak. Pandemic.
Biden, whose popularity has been tarnished as prices have risen, has made tackling inflation his top domestic priority but notes he has few tools to directly influence prices.
The president has tried to get his optimistic message across on post-pandemic economic progress, including rapid GDP growth and record job creation, while urging Congress to take action to cut the cost of certain products .
He will address the inflation challenge later on Friday and is likely to reiterate his call for legislation to prosecute companies, such as shipping companies, that take advantage of limited competition to impose steep price hikes.
But recent inflation data dealt a crushing blow to his efforts, as the consumer price index (CPI) rose 8.6 percent compared to May 2021, up from 8.3 percent in the 12 months to April, beating what most economists were predicting the peak was 8.5 percent in March.
According to the Labor Department’s report, prices for a range of commodities including housing, groceries, airline tickets and used and new vehicles continued to rise over the past month, setting new records in several categories.
“The inflation headlines are terrible. If you take out some special factors, they’re just bad,” Harvard economist and former White House adviser Jason Furman said on Twitter.
Some economists expected that the easing of pandemic restrictions would lead to a shift in US consumer demand towards services and away from goods, which they say would ease inflationary pressures, but prices for services also rose.
– Rising Energy –
And the CPI rose 1 percent from April, after a modest 0.3 percent gain in the previous month, the Labor Department reported, far higher than expected by analysts who were expecting inflationary pressures to ease slightly.
Energy rose 34.6 percent last year, the fastest since September 2005, while food rose 10.1 percent — the first rise of more than 10 percent since March 1981, the report said.
Heating oil, in particular, more than doubled, according to the report, rising 106.7 percent, the largest rise in CPI history, which dates back to 1935.
“The price of heating oil and natural gas is working its way through the economy,” Biden’s economic adviser Brian Deese told CNBC. “The question now is how can we actually make progress… that would improve that?”
“We are calling on Congress to pass shipping legislation that would reduce the cost of shipping goods overseas.”
Food and fuel prices have accelerated in recent weeks since Russia’s invasion of Ukraine pushed up global oil and grain prices, and American drivers are facing record-breaking daily gas prices, with the national average falling on Friday, according to the AAA reached $4.99 per gallon.
The United States has come back roaring from the economic damage inflicted by the Covid-19 pandemic, helped by cheap borrowing costs and massive government stimulus measures.
But with the pandemic still gripping other parts of the world, global supply chain issues have caused demand to far outstrip resources. Meanwhile, the conflict in Ukraine has pushed global oil prices above $100 a barrel.
The Federal Reserve has begun aggressively raising interest rates, with another large hike expected next week and more in the coming months as policymakers try to combat inflationary pressures without triggering a recession.
The CPI rise “raises the likelihood of even more aggressive rate hikes by the Fed to curb inflation expectations,” said Mickey Levy of Berenberg Capital Markets, adding that a pause in September rate hikes “appears increasingly unlikely.”
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