The inflation in the USA hit a fresh 40-year high in May and surged 8.6% from 12 months earlier, said the country’s Labor Department on Friday.
Costs of food, gas and other necessities jumped from 1% in April to May, a steep rise from the 0.3% increase from March to April. The gas prices have been skyrocketing for a few months.
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 central bank, it will be a difficult balancing act.
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 easing strict COVID lockdowns in Shanghai and elsewhere, more of its citizens are driving, thereby sending oil prices up even further.
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.