The key inflation gauge was unchanged at 6.3% in May from April

The Federal Reserve closely tracks inflation and found that it rose 6.

NewsEditor
NewsEditor
02 July 2022 Saturday 03:25
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The key inflation gauge was unchanged at 6.3% in May from April

The Federal Reserve closely tracks inflation and found that it rose 6.3% in May, compared to a year ago. Its level is unchanged from April.

The Commerce Department's Thursday report provided new evidence that high inflation is putting financial pressure on American households. It also revealed that it is causing particular harm to low-income families as well as people of color.

Consumers are spending less as prices rise. According to the government, consumer spending increased at a slow 0.2% rate between April and May. This indicates that consumers are beginning to lose money in the face high inflation.

Prices increased 0.6% month-to-month from April to May, compared to 0.2% in March and April.

"The rising cost to live absorbed all the extra spending power that was generated by higher wages and added jobs in May. In a research note, Bill Adams, Comerica Bank's chief economist, stated that Americans are running faster to keep even.

As the midterm elections approach, President Joe Biden and Democrats face a major threat from high inflation. According to a survey by The Associated Press-NORC Center for Public Affairs Research, seventy-nine per cent of Americans consider the economy poor. Americans are facing rising rents and high gasoline prices, as well as an increase in inflation, at a time when the 3.6% unemployment rate is overtaken.

Morning Consult also released a separate report Thursday that found consumers increasingly relying on credit or savings to pay for their purchases. Morning Consult reported that the share of adults with credit card balances increased by 5 percentage points over a year. This was due to inflation, which has eroded purchasing power and incomes.

Consumers are becoming more anxious about the economy because of high inflation. According to the Conference Board survey, consumer confidence is at its lowest level in 16 months. Inflation fears have made Americans' outlook worse, particularly with regard to food and gas prices.

The Federal Reserve launched a series aggressive interest rate increases in response to the most severe inflation since 1980s. This was to slow down growth and make borrowing more expensive. The Fed increased its key rate by three quarters of a percentage point two weeks ago. This was the largest increase in 25 years and signals that there will be more rate hikes.

The Fed tends monitor Thursday's inflation gauge (called the personal consumption expenditures prices index) more closely than the government's well-known consumer price index. Although the components of both indexes are different -- CPI tends more heavily to weigh gasoline and higher inflation -- they tell the same story: Inflation has reached dangerously high levels.

The unexpectedly rapid recovery from the 2020 pandemic recession is causing prices to soar. Consumers went on a spending spree, fueled by record-low borrowing rates, government stimulus checks, and savings that they had made during the pandemic. This led to a boom in prices and overwhelmed freight yards, ports, and factories. Prices rose as a result of shortages in goods and labor.

Although the Fed took a while to acknowledge the seriousness of the inflation threat and dismissed it as mainly a temporary result of supply-chain bottlenecks, they did eventually. However, spiking prices proved difficult to manage and the Fed is now playing catch up with large rate hikes that could lead to economic collapse.

Irina Ivanova, CBS News reporter, contributed reporting.

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