In the first six months of the Biden presidency, rising inflation has squeezed businesses and families still feeling the effects of the pandemic.
As Americans return to normal life and spending habits, Republicans are sounding the alarm on rising prices, and laying blame squarely on what they see as President Biden’s spending agenda.
The Consumer Price Index rose five percent compared with a year ago, the Department of Labor said Thursday. On a monthly basis, the CPI rose a hotter than expected 0.6 percent.
Economists had expected the Labor Department to report that consumer prices rose 0.5 percent in May compared with April. The consensus forecast was for a 4.7 percent gain when measured against May of 2020, which would have been the hottest reading since skyrocketing energy prices pushed up the index in the fall of 2008.
The reading for core inflation, which strips out volatile food and energy prices, was expected to rise 3.5 percent compared with a year ago. That would have been the strongest annual increase in 28 years. On a monthly basis, economists were expecting a 0.5 percent gain.
The index for used cars and trucks continued to rise sharply, jumping 7.3 percent in May. Compared with a year ago, used car prices are up 29.7 percent.
Energy prices were flat, with a drop in gasoline prices offsetting increases in electricity and natural gas. Food prices rose 0.4 percent. The index for airfares rose 7 percent compared with April and is up 24.1 percent compared with a year ago.
Federal Reserve officials and Treasury Secretary Janet Yellen have said they expect this rapid rise in the cost of living to fall off by later this year. The year-over-year numbers are boosted by what economists call a base effect, which means that the figures are based on gains over prices that were depressed by pandemic shutdowns. In a few months, however, the comparison will be against less depressed prices as the economy begins to recover.
Increasingly, however, some analysts fear that inflation could go on for longer and become hotter than expected because of the combination of very low interest rates, pent up consumer demand for goods and services, a particularly large budget deficit, and the release of excess savings built up by stimulus payments.
Rising labor costs are pushing prices up in some areas, but officials don’t believe that’s the beginning of a runaway, upward spiral, like the U.S. experienced in the 1970s. Chipotle said this week it’s raising menu prices about 4% to help cover its new $15-an-hour average wage for employees.
“While we’re seeing some inflation, I don’t believe it’s permanent,” Treasury Secretary Janet Yellen said last weekend. “We’ll watch this very carefully, keep an eye on it and try to address issues that arise if it turns out to be necessary.”