Nationally, the price of a gallon of regular gasoline has hit a record $4.40. according to AAA, although this figure is not adjusted for inflation. The high oil price is the main reason. A barrel of US crude was selling for around $100 a barrel on Tuesday. Gas had fallen to about $4.10 a gallon in April after hitting $4.32 in March.
Aside from the financial strain on budgets, inflation poses a serious political problem for President Joe Biden and Congressional Democrats in the mid-election season, with Republicans arguing that Biden’s $1.9 trillion financial stimulus package last March has overheated the economy by flooding it with increased stimulus checks, unemployment benefits and child tax allowances.
On Tuesday, Biden tried to seize the initiative, declaring inflation the “#1 problem facing families today” and “my top domestic policy priority.”
Biden blamed chronic supply chain snarls related to the rapid economic recovery from the pandemic, as well as the Russian invasion of Ukraine, for igniting inflation. He said his government will help mitigate price hikes by shrinking the government’s budget deficit and encouraging competition in industries like meatpacking, which are dominated by a few industry giants.
Still, new disruptions abroad or other unforeseen problems could keep pushing US inflation to new highs. For example, if the European Union decides to cut off Russian oil, gas prices in the United States would likely accelerate. China’s Covid lockdowns are exacerbating supply problems and hampering growth in the world’s second largest economy.
Earlier signs that US inflation might be peaking did not hold up. Price increases slowed last August and September, suggesting at the time that higher inflation could be temporary, as many economists – and Federal Reserve officials – had suspected. But prices shot up again in October, prompting Fed Chair Jerome Powell to shift policy towards higher interest rates.
This time, however, several factors are pointing to a peak in inflation. Natural gas prices, which had spiked in March following Russia’s invasion of Ukraine, fell on average in April, likely slowing inflation. Used car prices are also expected to have fallen over the past month. Automaker supply chains have unraveled somewhat and new car sales have increased.
While food and energy have suffered some of the worst price spikes of the past year, analysts often watch the core numbers to get a feel for underlying inflation. Core inflation also tends to rise more slowly than headline inflation and may take longer to decline. Rents, for example, are rising at an all-time high, and there’s little sign of this trend reversing anytime soon.
The unexpected persistence of high inflation has prompted the Fed to begin what may be its fastest streak of rate hikes in 33 years. Last week, the Fed raised its short-term interest rate by half a point, the sharpest hike in two decades. And Powell signaled that more such sharp hikes are to come.
The Powell Fed is attempting the notoriously difficult — and risky — task of cooling the economy enough to curb inflation without triggering a recession. Economists believe such an outcome is possible, but unlikely with such high inflation.
Meanwhile, by some measures, Americans’ wages are rising at their fastest pace in 20 years. Their higher pay allows more people to keep up, at least in part, with higher prices. But employers typically respond by charging clients more to cover their higher labor costs, which in turn increases inflationary pressures.
Last Friday’s jobs report for April included hourly wage data that suggested wage increases were slowing, which if sustained could help ease inflation this year.
US inflation hit 8.3% last month but is slowing from a 40-year high
Source link US inflation hit 8.3% last month but is slowing from a 40-year high