Another jump in prices tightens the squeeze on US consumers
AP Economics Writer
WASHINGTON — American consumers absorbed another surge in prices in May — a 0.6% increase over April and 5% over the past year, the biggest 12-month inflation spike since 2008.
The May rise in consumer prices that the Labor Department reported Thursday reflected a range of goods and services now in growing demand as people increasingly shop, travel, dine out and attend entertainment events in a rapidly reopening economy.
The increased consumer appetite is bumping up against a shortage of components, from lumber and steel to chemicals and semiconductors, that supply such key products as autos and computer equipment, all of which has forced up prices. And as consumers increasingly venture away from home, demand has spread from manufactured goods to services — airline fares, for example, along with restaurant meals and hotel prices — raising inflation in those areas, too.
In its report Thursday, the government said that core inflation, which excludes volatile energy and food costs, rose 0.7% in May after an even bigger 0.9% increase in April, and has risen 3.8% over the past year. That is the sharpest 12-month jump in core inflation since 1992. And it is far above the Federal Reserve’s 2% target for annual price increases.
Among specific items in May, prices for used vehicles, which had surged by a record 10% in April, shot up an additional 7.3% and accounted for one-third of May’s overall price jump. The price of new cars, too, rose 1.6% — the largest one-month increase since 2009.
The jump in new and used vehicle prices reflects supply chain problems that have caused a shortage of semiconductors. The lack of computer chips has limited production of new cars, which, in turn, has reduced the supply of used cars. As demand for vehicles has risen, prices have followed.
But higher prices were evident in a wide variety of categories in May, including household furnishings, which rose 0.9%, driven by a record jump in the price of floor coverings. Airline fares rose 7% after having increased 10.2% in April. Food prices rose 0.4%, with beef prices jumping 2.3%. Energy costs, though unchanged in May, are still up 56.2% in the past year.
From the cereal maker General Mills to Chipotle Mexican Grill to the paint maker Sherwin-Williams, a range of companies have been raising prices or plan to do so, in some cases to make up for higher wages they’re now paying to keep or attract workers. This week, for example, Chipotle Mexican Grill announced it was boosting menu prices by roughly 4% to cover the cost of raising its workers’ wages. In May, Chipotle had said that it would raise wages for its restaurant workers to reach an average of $15 an hour by the end of June.
Andrew Hunter, a senior U.S. economist at Capital Economics, noted that the price category that covers restaurant meals jumped 0.6% last month. He took that as evidence that labor shortages at restaurants, hotels and other service sector companies are beginning to fuel wage and price increases.