Inflation costing US households more than $400 more per month

Consumer prices surged 8.6% last month from a year earlier, faster than April’s year-over-year increase of 8.3%, the Labor Department said Friday.

On a month-to-month basis, prices jumped 1% in May, much faster than April's 0.3% rise. So-called “core” inflation, a measure that excludes volatile food and energy prices, climbed 0.6% for a second straight month and are now 6% above where they were a year ago.

Those metrics are stunning to shoppers and to experts like Gerald Cohen, chief economist at the University of North Carolina at Chapel Hill's Kenan Institute of Private Enterprise. "Inflation rose to the highest level since the early 1980s, and people including myself had expected we were close to the peak," he said.

While the Consumer Price Index is an average of the costs of thousands of specific items, a breakdown shows Americans are spending:

"It's definitely been hard to try and balance everything out," said Cassidy Hinnant.

She is juggling work, school and a long-distance relationship.

"I bought a plane ticket in March for $400, and now I went for a week and it was like $1,000," she said.

Friday's report underscored fears that inflation is spreading beyond energy and goods whose prices are being driven higher by clogged supply chains and Russia's invasion of Ukraine. If the Fed becomes more aggressive in combating inflation with rate hikes, it will mean higher-cost loans for families and businesses, and raises the risk of recession.

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Experts advise against panic, saying that's what could trigger a recession. Save what you can. Be mindful about spending, but don’t stop entirely.

"This is where economics becomes psychology," Cohen said. "If people get really scared and they stop, that’s generally what causes recessions."

Laura Wronski, director of research at the Morrisville-based business insight firm Momentive, said a recent study shows more than half of people are already cutting back on things like dining out and summer vacation plans.

"I think we're at that point now, where people are really deciding, you know, can we actually take that summer vacation? You know, can we fly somewhere? Or do we have to drive somewhere instead," she said.

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Restaurant prices jumped 7.4% in the past year, the largest 12-month gain since 1981. Owners are also facing immense pressure to raise wages in a heated job market.

Housing costs are still climbing. The government's shelter index, which includes rents, hotel rates and a measure of what it costs to own a home, increased 5.5% in the past year, the most since 1991. Airline fares are up nearly 38% in the past year, the sharpest such rise since 1980.

Rampant inflation is imposing severe pressures on families. Lower-income and Black and Hispanic Americans in particular are struggling because, on average, a larger proportion of their income is consumed by necessities.

In light of Friday's inflation reading, the Fed is all but certain to carry out the fastest series of interest rate hikes in three decades. By sharply raising borrowing costs, the Fed hopes to cool spending and growth enough to curb inflation without tipping the economy into a recession.

Surveys show that Americans see high inflation as the nation’s top problem, and most disapprove of President Joe Biden’s handling of the economy. Congressional Republicans are hammering Democrats on the issue in the run-up to midterm elections this fall.

Americans have soured on the economy yet have largely kept up their spending, even if through gritted teeth.

Wages are not rising as fast as inflation, but they are still increasing at the fastest pace in several decades,. And many households — including lower-income ones — accumulated savings from government support payments during the pandemic. They're now drawing on those savings to keep up with higher prices.

Americans are also increasingly turning to credit cards, with total credit card debt rising sharply in April, the Federal Reserve reported earlier this week, though it has only barely surpassed pre-pandemic levels.

How long these trends — higher wages, extra savings, and rising credit card debt — can enable Americans to keep spending will be a key factor in determining the chance of a recession. To cool inflation, spending growth must be slowed.

For lower-income Americans, there are signs it already is. Sales are slowing at retailers that cater to budget-conscious shoppers, such as dollar stores. Walmart said customers are trading down to cheaper 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 this week. That’s up from about 7.5% in February, a steep increase in such a short period.