Soaring fuel, food and rent prices catapulted US inflation to a new four-decade high in June, putting additional pressure on households and likely sealing the case for another big hike in interest rates by the Federal Reserve, with higher borrowing costs to follow.
Consumer prices rose 9.1% from a year earlier, the US government said on Wednesday, the biggest annual increase since 1981, and up from an 8.6% jump in May .
On a monthly basis, prices rose 1.3% from May to June, another substantial increase, after prices jumped 1% from April to May.
Some economists remained hopeful that inflation could reach or approach a short-term peak.
Fuel prices, for example, fell from the five US dollars (about £4.05) a gallon reached in mid-June to an average of $4.63 (£3.90) nationwide on Wednesday – still much higher than a year ago, but a drop that could help dampen inflation for July and possibly August.
In addition, shipping costs and raw material prices began to drop.
Wage increases have slowed. And surveys show that Americans’ long-term inflation expectations have eased — a trend that often points to more subdued price increases over time.
Yet the magnitude of the price gains shows how rising costs have seeped into almost every corner of the economy.
Grocery store prices jumped 12.2% from a year ago, the biggest such increase since 1979. Rents rose 5.8%, the most since 1986.
New car prices rose 11.4% from a year earlier. And airfares, one of the few items to show a price drop in June, are nonetheless up 34% from a year earlier.
From May to June, the cost of dental services jumped 1.9%, the largest one-month increase since record-keeping began in 1995.
The relentless spike in inflation has diminished consumer confidence in the economy, dented US President Joe Biden’s approval ratings and posed a major political threat to Democrats in November’s congressional elections.
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.
In the aftermath of the 2020 pandemic recession, as Americans focused their spending on household items, such as furniture, appliances and exercise equipment, supply chains were overwhelmed and prices for physical goods soared.
But as consumer spending has gradually shifted away from goods towards services such as travel, dining out, movies, concerts and sporting events, some of the biggest price increases have been in services.
Housing prices have also risen sharply. A shortage of homes for sale kept prices high just as mortgage rates also soared.
With many people out of the housing market and looking to rent instead, the demand for apartments has driven rental rates beyond affordable levels.
The average cost of new leases has jumped 14% over the past year, according to property broker Redfin, to an average of $2,016 (£1,700) a month.
Rents measured by the government’s inflation index rose more slowly because they include all rents, including existing leases. But economists expect rising spending on new leases to drive up the government’s inflation measure in coming months.
Persistently high inflation has unnerved Chairman Jerome Powell and other Fed officials, who embarked on the fastest round of rate hikes since the late 1980s in an attempt to slow price spikes .
The US 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, with potentially bigger rate hikes to follow.
Mr Powell stressed that the central bank wants to see “hard evidence” that inflation is slowing before calling back its rate hikes.
Such evidence should be a “series of falling monthly inflation readings,” Powell said at a news conference last month.
Many economists worry that the Fed’s drive to rein in inflation could lead it to tighten credit too aggressively, even as the economy, by some measures, is slowing. Much higher borrowing costs could trigger a recession, potentially by next year.
Consumers began to cut spending, home sales tumble as mortgage rates rise and factory output fell in May. Yet strong and steady job growth indicates a still-expanding economy, with few signs of an impending recession.
While inflation may slow later this year, it’s unclear by how much. Oil prices fell to around $96 a barrel on Tuesday. And other commodities, including metals like copper, have also become cheaper, mainly due to recession fears in the United States and Europe.
With fewer ships stranded at the Port of Los Angeles and Long Beach, the largest in the United States, shipping costs for international freight have plummeted.
Wholesale gasoline prices have fallen to around $3.40 a gallon, suggesting retail prices could drop as low as $4.20 by August, according to Omair Sharif, founder of Inflation Insights .
And wholesale used car prices are also falling, indicating lower used car prices in the coming months.
Inflation has also increased abroad. It reached 9.1% in the UK in May, the highest level in four decades, mainly due to rising fuel and food prices.
Annual inflation in the 19 eurozone countries reached 8.6% in June, surpassing the 8.1% recorded in May. Inflation is now at its highest level since the start of the euro registration in 1997.