Prices rose 6.3% in May, unchanged from April, key inflation gauge shows
A measure of inflation closely tracked by the Federal Reserve rose 6.3% in May from a year earlier, unchanged from its level in April.
Thursday's report from the Commerce Department provided the latest evidence that painfully high inflation is placing financial pressure American households and inflicting particular harm on low-income families and people of color.
As prices surge upward, consumers are spending less. The government's report also said that consumer spending rose at a sluggish 0.2% rate from April to May, showing that spending is beginning to weaken in the face of high inflation.
On a month-to-month basis, prices rose 0.6% from April to May, up from a 0.2% increase from March to April.
"The rising cost of living absorbed all of the increased spending power from added jobs and higher wages in May. Americans are running faster just to stay even," Bill Adams, chief economist at Comerica Bank, said in a research note.
Chronically high inflation has become a leading threat to the economy and a political hazard for President Joe Biden and Democrats as midterm elections near. Seventy-nine percent of U.S. adults describe the economy as poor, according to a new survey from The Associated Press-NORC Center for Public Affairs Research. Inflation is eclipsing the healthy 3.6% unemployment rate as a focal point for Americans who are struggling with high gasoline and food prices and rising rents.
A separate report from Morning Consult released Thursday found that consumers are increasingly having to rely on savings or credit for their purchases. "The share of adults carrying credit card balances climbed 5 percentage points compared with a year ago, as inflation eroded purchasing power and incomes could no longer stretch as far as they once did," Morning Consult wrote.
High inflation has made consumers increasingly anxious about the economy. Consumer confidence has reached its lowest point in 16 months, according to a survey from the Conference Board, with Americans' outlook darkened by inflation fears, especially gas and food prices.
Fed plays catch-up
In response to the highest inflation since the 1980s, the Federal Reserve has embarked on a series of aggressive interest rate hikes intended to slow growth by making borrowing more expensive. Two weeks ago, the Fed raised its key rate by three-quarters of a point — its largest hike in 25 years — and signaled more large rate increases to come.
The Fed tends to monitor Thursday's inflation gauge, called the personal consumption expenditures price index, even more closely than it does the government's better-known consumer price index. While the components of the two indexes differ — CPI tends to weigh gasoline and housing costs more heavily and to show higher inflation — the two gauges tell the same basic story: Inflation is running dangerously hot.
Soaring prices are a consequence of the economy's unexpectedly swift rebound from the pandemic recession of 2020. Boosted by government stimulus checks, record-low borrowing rates and savings built up during the pandemic while stuck at home, consumers went on a spending spree that caught businesses off guard and overwhelmed factories, ports and freight yards. The resulting shortages of goods and labor sent prices spiking.
The Fed was slow to recognize the severity of the inflation threat, dismissing it as mainly a temporary consequence of supply-chain bottlenecks. But spiking prices have proved intractable, and now the central bank is playing catch-up with sizable rate hikes that could end up derailing the economy.
CBS News' Irina Ivanova contributed reporting.