WASHINGTON (AP) – US consumers absorbed another price spike in May – an increase of 0.6% from April and 5% from a year ago, the biggest rise in inflation in 12 months since 2008.
The consumer price hike in May reported by the Labor Department on Thursday reflected a range of goods and services now in increasing demand, as people increasingly shop, travel, dine out and attend events. entertainment events in a rapidly reopening economy.
Increased consumer appetite is hampered by a shortage of components, from lumber and steel to chemicals and semiconductors, which provide key products such as automobiles and computer hardware, which has drives up prices. And as consumers venture further and further from home, demand has spread from manufactured goods to services – air fares, for example, as well as restaurant meals and hotel prices – also increasing. inflation in these areas.
In its report on Thursday, the government said core inflation, which excludes volatile energy and food costs, rose 0.7% in May after an even larger increase of 0.9% in April, and increased 3.8% over the past year. This is the biggest 12-month increase in core inflation since 1992. And it’s well above the Federal Reserve’s 2% target for annual price increases.
Among specific items in May, used vehicle prices, which had jumped a record 10% in April, climbed a further 7.3% and accounted for a third of May’s overall price increase. The price of new cars also rose 1.6%, the largest month-on-month increase since 2009.
Rising prices for new and used vehicles reflect supply chain issues that have led to a shortage of semiconductors. The lack of computer chips has limited the production of new cars, which in turn has reduced the supply of used cars. As the demand for vehicles increased, prices followed.
But higher prices were evident in a wide variety of categories in May, including household furniture, which rose 0.9%, due to a record rise in the price of flooring. Air fares rose 7% after rising 10.2% in April. Food prices rose 0.4%, while beef prices jumped 2.3%. Energy costs, although unchanged in May, are still up 56.2% over the past year.
From grain maker General Mills to Chipotle Mexican Grill to paint maker Sherwin-Williams, a number of companies have raised their prices or plan to do so, in some cases to offset the higher wages they pay. now to retain or attract workers. This week, for example, Chipotle Mexican Grill announced that it was increasing menu prices by about 4% to cover the cost of increasing wages for its employees. In May, Chipotle announced it would increase the salaries of its restaurant workers to an average of $ 15 an hour by the end of June.
Andrew Hunter, senior US economist at Capital Economics, noted that the price category that covers restaurant meals jumped 0.6% last month. He took this as evidence that labor shortages in restaurants, hotels and other service sector businesses are starting to fuel wage and price increases.
Inflationary pressures are not only crushing consumers, but also pose a risk to the recovery of the economy from the pandemic recession. One of the risks is that the Fed will eventually react to rising inflation by raising interest rates too aggressively and derailing the economic recovery.
The central bank, headed by President Jerome Powell, has repeatedly expressed its belief that inflation will prove temporary as supply bottlenecks are cleared and coins and commodities circulate normally again. But some economists have expressed concern over the acceleration of the economic recovery, fueled by growing demand from consumers who are spending freely again, as well as inflation.
The question is, for how long?
“The price spikes could be larger and more prolonged because the pandemic has disrupted supply chains so much,†said Mark Zandi, chief economist at Moody’s Analytics. But “by the fall or the end of the year,” Zandi suggested, “the prices will come back to earth.”
It wouldn’t be too soon for consumers like Carmela Romanello Schaden, real estate agent in Rockville Center, New York. Schaden said she had to pay more for a range of items in her hair salon. But it is in the food aisle that she feels the most pain. Her weekly food bill, she said, is now $ 200 to $ 250 for herself and her 25-year-old son, up from $ 175 earlier in the year.
A bundle of strip loin that Schaden had normally bought between $ 28 and $ 32 rose to $ 45. She noticed the increase just before Memorial Day, but bought it anyway because it was for a family picnic. But she won’t buy it at that price again, she said, and sells herself to pork and chicken.
“I’ve always been selective,†Schaden said. “When something goes up, I move on.”
So far, Fed officials have not deviated from their view that higher inflation is a temporary consequence of the rapid reopening of the economy, with accelerating consumer demand and lack of sufficient supplies and workers to keep pace. Eventually, they say, the supply will increase to match the demand.
Officials also note that year-over-year inflation indicators now appear particularly important as they are measured against the early months of the pandemic, when inflation fell as the economy practically came to a halt. . Over the next few months, the year-over-year inflation figures are likely to look weaker.
Kathy Bostjancic, an economist at Oxford Economics, a consultancy firm, suggested that the effect of these so-called “base effects” would start to wear off next month and that year-to-year measures of inflation. the other should also.
“This will be the peak of the annual inflation rate,†Bostjancic said in a research note. “While we share the Fed’s view that this is not the start of an upward inflationary spiral, we hope that inflation will remain consistently above 2% until 2022.”
Indeed, the government’s monthly inflation readings, which are not prone to distortions due to the pandemic, have also increased since the start of the year. Some economists say they fear that if prices accelerate too much and stay high for too long, expectations of further price hikes will materialize. This, in turn, could intensify demands for higher wages, potentially triggering the kind of wage-price spiral that plagued the economy in the 1970s.
Investors so far seem indifferent to the risks of higher inflation. On Thursday, bond market yields fell within hours of the government’s announcement of soaring consumer prices. And stock prices have gone up.
“Investors were encouraged that the drivers of this month’s rise in inflation came from factors likely to be transient, such as used car prices and air travel,” he said. said Sam Stovall, chief investment strategist at CFRA.
For now, however, rising commodity costs are forcing Americans to pay more for items ranging from meat to gasoline. The prices of corn, grains and soybeans are at their highest levels since 2012. The price of lumber to build houses is at an all time high. More expensive products, such as polyethylene and wood pulp, have translated into higher consumer prices for toilet paper, diapers and most products sold in plastic containers.
General Mills said it was considering raising the prices of its products because grains, sugar and other ingredients became more expensive. Hormel Foods has already raised the prices of Skippy peanut butter. Coca-Cola said it plans to raise prices to offset rising costs.
Kimberly-Clark, who makes Kleenex and Scott toilet tissue, said it would increase prices by about 60% of its products. Proctor & Gamble has announced that it will increase the prices of its baby, women’s and adult care products.
“There is a higher demand for hotel rooms, air travel, restaurants,” said Gus Faucher, chief economist at PNC Financial. “Many companies are also facing upward pressure on their costs, such as higher wages. “