WASHINGTON – US consumers absorbed another jump in prices in May – a 0.6% increase in April and 5% over the previous year, the biggest 12-month inflation spike since 2008.
The May rise in consumer prices that the Labor Department reported on Thursday reflects a range of goods and services now in rising demand as people increasingly shop, travel, dining and entertainment events in a rapidly reopening economy. participate in.
From wood and steel to chemicals and semiconductors that supply key products such as auto and computer equipment, prices have all increased, fueling consumer appetite. And as consumers move away from home, demand has spread from manufactured goods to services—airline fares, for example, restaurant food and hotel prices—with inflation rising in those areas as well.
In its report on Thursday, the government said core inflation, which does not include volatile energy and food costs, rose 0.7 percent in May, after a further increase of 0.9 percent in April, and rose 3.8 percent over the previous year. . This is the sharpest 12-month jump in core inflation since 1992. And that’s well above the Federal Reserve’s 2% target for annual price increases.
Among specific items in May, prices of used vehicles, which rose by a record 10% in April, rose an additional 7.3% and accounted for a third of May’s overall price jump. The price of new cars also rose 1.6% – the biggest one-month increase since 2009.
The jump in prices of new and used vehicles reflects supply chain problems leading to shortages of semiconductors. The lack of computer chips has limited production of new cars, which has reduced the supply of older cars. As the demand for vehicles has increased, the prices have followed.
But higher prices were evident in May across a variety of categories, including household goods, which rose 0.9% on a record jump in the price of floor coverings. Airline fares rose 7% after rising 10.2% in April. Food prices increased by 0.4%, with beef prices up 2.3%. Energy costs, although unchanged in May, are still up 56.2% in the previous year.
From cereal maker General Mills to Chipotle Mexican Grill to paint maker Sherwin-Williams, many companies are raising prices or planning to do so, in some cases for higher wages they now keep or attract. are paying for. staff. This week, for example, Chipotle Mexican Grill announced that it was increasing menu prices by about 4% to cover the cost of raising the wages of its workers. In May, Chipotle said it would raise wages for its restaurant workers to reach an average of $15 an hour by the end of June.
Andrew Hunter, a senior US economist at Capital Economics, noted that the price category covering restaurant meals grew by 0.6% last month. He took this as evidence that labor shortages in restaurants, hotels and other service sector companies have triggered wage and prices to rise.
Inflationary pressures are not only squeezing consumers, but are also posing the risk of the economy recovering from the pandemic slowdown. One risk is that the Fed will eventually respond by raising interest rates too aggressively to accelerate inflation and derail the economic recovery.
The central bank, led by Chair Jerome Powell, has repeatedly expressed confidence that inflation will prove to be temporary as supply bottlenecks are removed and parts and goods flow back to normal. But some economists have expressed concern that as the economic recovery accelerates, rising consumer demand will lead to inflation again by spending freely.
The question is, for how long?
“The price spikes could be bigger and longer because the pandemic is so disruptive to supply chains,” said Mark Zandi, chief economist at Moody’s Analytics. But “by the fall or end of the year,” Zandi suggested, “prices will be back down to earth.”
It won’t be too soon for consumers like Carmella Romanello Shaden, a real estate agent in Rockville Center, New York. Shaden said she has to pay more for a variety of items at her hair salon. But they are getting the most pain in the food aisle. Her monthly food bill, she said, is now $200 to $250 for her and her 25-year-old son — up from $175 earlier in the year.
A package of strip steaks that Shaden usually bought for $28 to $32 jumped to $45. She saw the hike just before Memorial Day but bought it anyway because it was for a family picnic. But she won’t buy it again at that price, she said, and is trading in pork and chicken.
“I’ve always been selective,” Shaden said. “When something goes up, I’ll turn into something else.”
So far, Fed officials have not shied away from their view that high inflation is a temporary consequence of a rapid reopening of the economy, coupled with accelerating consumer demand, and a lack of adequate supplies and workers to keep pace with it. is. Eventually, he says, supply will increase to match demand.
Officials also noted that the year-on-year gauges of inflation now look particularly large because they are being measured against the early months of the pandemic, when inflation fell as the economy but stopped. In the coming months, the year-on-year inflation figures are likely to look smaller.
Cathy Bosjanic, an economist at Oxford Economics, a consulting firm, suggested that the impact of these so-called “base effects” would begin to subside next month and that year-over-year measures of inflation should do the same.
“This will be the peak in the annual rate of inflation,” 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 see inflation to remain consistently above 2% through 2022.”
In fact, the government’s month-to-month readings of inflation, which are not subject to distortions from the pandemic, have also been rising since the year began. Some economists say they fear that if prices rise too high and remain high for too long, expectations of further price increases will take hold. This, in turn, could accelerate demand for higher wages, potentially triggering the kind of wage-price spiral that plagued the economy in the 1970s.
So far, investors seem unconcerned about the risk of higher inflation. Bond market yields fell on Thursday after the government reported a jump in consumer prices. And stock prices rose.
“Investors were encouraged that this month’s inflation advances came from factors that are actually likely to be temporary, such as auto prices and airline travel,” said Sam Stovall, chief investment strategist at CFRA.
For now, though, rising commodity costs are forcing Americans to pay more for items ranging from meat to gasoline. Corn, grain and soybean prices are at their highest level since 2012. The cost of timber to build houses is at an all-time high. More expensive items such as polyethylene and wood pulp have translated to higher consumer prices for toilet paper, diapers and most products sold in plastic containers.
General Mills has said it is considering raising prices on its products as cereals, sugar and other ingredients have become costlier. Hormel Foods has already increased the prices of Skippy Peanut Butter. Coca-Cola has said it expects to raise prices to offset higher costs.
Kimberly-Clark, which makes Kleenex and Scott toilet paper, said it would raise prices on about 60% of its products. Procter & Gamble has said it will increase the prices of its baby, feminine and adult care products.
“There is strong demand for hotel rooms, air travel, restaurant dining,” said Gus Faucher, chief economist at PNC Financial. “Many businesses are also facing upward pressure on their costs, such as higher wages.”
AP Business Writers Anne D’Innocenzio and Stan Cho in New York, Christopher Rugaber in Washington and Alex Veiga in Los Angeles contributed to this report.