U.S. inflation unexpectedly hits 9.1%, setting new 40-year high

The U.S. posted a new 40-year high for inflation on Wednesday as some economists had held out hope that inflation might be reaching or nearing a short-term peak.

Surging prices for gas, food and rent catapulted U.S. inflation to a new four-decade peak in June, further pressuring households and likely sealing the case for another large interest rate hike by the Federal Reserve, with higher borrowing costs to follow.

Consumer prices soared 9.1 per cent compared with a year earlier, the government said Wednesday, the biggest 12-month increase since 1981, and up from an 8.6 per cent jump in May. On a monthly basis, prices rose 1.3 per cent from May to June, another substantial increase, after prices had jumped one per cent from April to May.

The ongoing price increases underscore the brutal impact that inflation has inflicted on many families, with the costs of necessities, in particular, rising much faster than average incomes. Lower-income and Black and Hispanic Americans have been hit especially hard, because a disproportionate share of their income goes toward such essentials as housing, transportation and food.

Some economists have held out hope that inflation might be reaching or nearing a short-term peak. Gas prices, for example, have fallen from the eye-watering US$5 a gallon reached in mid-June to an average of US$4.66 nationwide as of Tuesday — still far higher than a year ago but a drop that could help slow inflation for July and possibly August.

In addition, shipping costs and commodity prices have begun to fall. Pay increases have slowed. And surveys show that Americans’ expectations for inflation over the long run have eased — a trend that often points to more moderate price increases over time.

Yet for now, the relentless spike in inflation has caused a steep drop in consumers’ confidence in the economy, sent President Joe Biden’s approval ratings tumbling and posed a major political threat to Democrats in the November congressional elections. Forty percent of adults said in a June AP-NORC poll that they thought tackling inflation should be a top government priority this year, up from just 14 per cent who said so in December.

In the immediate aftermath of the 2020 pandemic recession, as Americans focused their spending on items for the home, like furniture, appliances and exercise equipment, supply chains became overwhelmed and prices for physical goods soared. But as consumer spending has gradually shifted away from goods and toward services like vacation travel, restaurants meals, movies, concerts and sporting events, some of the highest price increases have occurred in services.

Housing, in particular, has been seized by some of the highest inflation rates in the economy, causing hardships for many. A shortage of houses for sale has sent home prices skyrocketing just as mortgage rates have also soared.