WASHINGTON -- The costs of gas, food and other necessities likely shot up in May, giving Americans no respite from the worst outbreak of inflation in four decades.
Economists have forecast that overall consumer prices jumped 8.2% last month compared with a year earlier, according to data provider FactSet. That would be barely below the 8.3% year-over-year surge in April and the 8.5% increase in March, which was the most since 1982.
And on a month-to-month basis, prices are expected to have jumped 0.7% from April to May, up sharply from a 0.3% increase from March to April. The acceleration would almost certainly be due to gas prices, which had declined in April but leaped more than 10% in May alone and have since reached an average of nearly $5 a gallon nationwide.
America's rampant inflation is imposing severe financial pressures on families, forcing them to pay much more for such items as food, gas and rent and reducing their ability to afford discretionary items, from haircuts to entertainment. Lower-income and Black and Hispanic Americans, in particular, are struggling because, on average, a larger proportion of their income is consumed by necessities.
High inflation has also forced the Federal Reserve into what will likely be the fastest series of interest rate hikes in three decades. By raising borrowing costs aggressively, the Fed hopes to cool spending and growth enough to curb inflation without tipping the economy into a recession. For the Fed, it will be a difficult balancing act.
Surveys show that Americans regard high inflation as the nation's top problem, and a substantial majority disapprove of President Joe Biden's handling of the economy. Congressional Republicans are hammering Democrats on the issue in the run-up to the fall midterm elections.
Inflation has remained high even as the sources of rising prices have shifted. Initially, robust demand for goods from Americans who were stuck at home for months after COVID hit caused shortages and supply chain snarls and drove up prices for cars, furniture and appliances.
Now, as Americans resume spending on services, including travel, entertainment and dining out, the costs of airline tickets, hotel rooms and restaurant meals have soared. Russia's invasion of Ukraine has further accelerated the prices of oil and natural gas. And with China now easing strict COVID lockdowns in Shanghai and elsewhere, more of its citizens are driving, thereby sending oil prices up even further.
Yet Friday's report on consumer inflation may contain some encouraging signs. Economists expect “core” inflation — which excludes volatile prices for food and energy — to slow. On a year-over-year basis, economists have estimated that core prices rose 5.9% in May, down from a 6.2% annual rate in April. It would be the second straight month that this figure has weakened. Economists closely track core inflation because it's considered a better gauge of future price changes.
The cost of used cars, which skyrocketed in 2020 and 2021 as shortages of semiconductors sharply reduced the availability of new cars, has fallen for three straight months. And clothing and appliance costs both dropped in April.
Goods prices are expected to fall further in the coming months. Many large retailers, including Target, Walmart and Macy's, have reported that they're now stuck with too much of the patio furniture, electronics and other goods that they ordered when those items were in heavier demand and will have to discount them.
Even so, rising gas prices are eroding the finances of millions of Americans. Prices at the pump are averaging nearly $5 a gallon nationwide and edging closer to the inflation-adjusted record of about $5.40 reached in 2008.
Research by the Bank of America Institute, which uses anonymous data from millions of their customers' credit and debit card accounts, shows spending on gas eating up a larger share of consumers’ budgets and crowding out their ability to buy other items.
For lower-income households — defined as those with incomes below $50,000 — spending on gas reached nearly 10% of all spending on credit and debit cards in the last week of May, the institute said in a report this week. That's up from about 7.5% in February, a steep increase in such a short period.
Spending by all the bank's customers on long-lasting goods like furniture, electronics and home improvement has plunged from a year ago, the institute found. But their spending on plane tickets, hotels and entertainment has continued to rise.
Economists have pointed to that shift in spending from goods to services as a trend that should help lower inflation by year's end. But with wages rising steadily for many workers, prices are rising in services as well.