Inflation hits highest level in 40 years, as local experts say bringing it down will be painful
PITTSBURGH (KDKA) — Inflation was up again in June, with the latest numbers showing the highest annual rate since 1981.
Fueled largely by skyrocketing energy prices in June and coupled with the hike at the grocery store, the Consumer Price Index jumped to an annualized 9.1 percent last month.
"Over the past year, prices have gone up about 9 percent. That's the fastest inflation we've seen in 40 years," Dr. Gus Faucher, PNC's chief economist, told KDKA-TV money editor Jon Delano on Wednesday.
Faucher says energy prices jumped 60 percent over the last year, while home food prices are up 12 percent.
"About half the inflation we are seeing are from energy prices. Another big chunk of it is coming from food, but the more concerning thing is that we are seeing prices rise for a lot of other goods and services. For example, rents are rising. Housing costs are rising. Restaurant meals are going up," Faucher said.
Duquesne University economist and professor Antony Davies said this is not unexpected since both the Trump and Biden administrations spent trillions of dollars to help people during covid.
"You'll hear politicians saying this caught everybody by surprise. It did not catch everybody by surprise. A lot of economists, myself included, have been saying back when covid began that all of this money printing we're doing to pay for these stimulus packages is going to come back to haunt us in the form of inflation," Davies said.
Covid relief programs coupled with supply chain problems, a war in Europe, and more people getting out and about to spend have boosted the inflation rate for everyone.
"The bottom line is that the American family will have to spend more dollars to live, and it's simply not possible to maintain the same standard of living," says Robert Morris University marketing professor Jill Kurp.
Kurp says as families turn to cheaper items to save dollars like fast foods, it could have another impact.
"If they are forced to go to some of the more processed, inexpensive foods, it's going to have an impact on the family's health," says Kurp.
So what can be done to bring down inflation?
"We're kind of in this situation where you have to choose – which evil do you want? Do you want inflation or do you want higher interest rates because you're going to get one of them," Davies said.
Davies says the Federal Reserve is likely to hike interest rates at the end of the month, perhaps a full percent, which means it will cost more to borrow money. Credit cards, car loans, student loans are all likely to go up.
"I think the fed will be inching up these interest rates until we see inflation come under control," Davies said.
"The fed is raising interest rates," Faucher said. "They're making it more expensive for consumers to borrow. They're making it more expensive for businesses to borrow. That's going to slow economic growth. That's going to reduce inflation, but it takes time for those interest rate increases to work their way through the system."
Faucher said the Federal Reserve's action takes time, but lower energy prices if passed along could have a quicker impact on the inflation rate.
"It will look much better in July. That is certainly true because we are seeing a big drop in gasoline prices but still inflation is much too high," says Faucher.
Another way to kick inflation, says Kurp, is for consumers to spend less by looking for better deals.
"It's going to be all about substitutions. How can you substitute for something that you normally buy for something that is a little bit less expensive?"
It's one thing to shop smarter when prices rise, but the biggest fear is that people will stop spending altogether. That could bring on a recession. Economists say it's all a delicate balance.