Nationwide, the price of a gallon of regular gas hit a record $ 4.40. according to AAA, even if that figure is not corrected for inflation. The high price of oil is the main factor. A barrel of US benchmark crude oil sold for around $ 100 a barrel on Tuesday. Gas had dropped to around $ 4.10 per gallon in April, after reaching $ 4.32 in March.
Beyond the financial strain for households, inflation is posing a serious political problem for President Joe Biden and Congressional Democrats in the midterm election season, with Republicans arguing that Biden’s 1 year financial support package $ 9 trillion last March overheated the economy by flooding it with stimulus controls, tighter unemployment benefits and tax credit payments for children.
On Tuesday, Biden tried to take the lead and declared inflation “the # 1 problem families face today” and “my top domestic priority.”
Biden blamed the chronic supply chain growls linked to the rapid economic recovery from the pandemic, as well as the Russian invasion of Ukraine, of having triggered inflation. He said his administration will help alleviate price increases by reducing the government’s budget deficit and fostering competition in sectors, such as meat packaging, which are dominated by some industry giants.
However, fresh outages abroad or other unforeseen problems could always drive US inflation back to new highs. If the European Union decides, for example, to cut Russian oil, gas prices in the United States are likely to accelerate. Covid blockades in China are worsening supply problems and hurting growth in the world’s second largest economy.
Previous signs of a possible spike in US inflation did not last. Price hikes decelerated last August and September, suggesting at the time that a rise in inflation could be temporary, as many economists and Federal Reserve officials had suggested. But prices rose again in October, prompting Fed Chairman Jerome Powell to start shifting policy towards higher rates.
This time around, however, several factors point to a spike in inflation. Natural gas prices, which soared in March following the Russian invasion of Ukraine, declined on average in April and likely slowed inflation. Used car prices are also expected to have dropped last month. Carmakers’ supply chains have broken up somewhat and new car sales have increased.
While food and energy have experienced some of the worst price spikes in the last year, analysts often monitor the key figure to get an idea of underlying inflation. Core inflation also typically rises slower than the overall price increase and may take longer to decline. Rents, for example, are rising at a historically fast pace and there are little signs of a turnaround in the short term.
The unexpected persistence of high inflation prompted the Fed to embark on what could become its series of fastest interest rate hikes in 33 years. Last week, the Fed raised its short-term policy rate by half a point, its strongest increase in two decades. And Powell has signaled that more sharp rate hikes are coming.
The Powell Fed is trying to accomplish the notoriously difficult and risky task of cooling the economy enough to slow inflation without causing a recession. Economists say such an outcome is possible but unlikely with such high inflation.
Meanwhile, according to some measures, American wages are rising at the fastest pace of the past 20 years. Their higher pay allows more people to at least partially keep up with higher prices. But employers typically respond by charging customers more to cover their higher labor costs, which, in turn, increases inflationary pressures.
Last Friday’s employment report for April included hourly wage data suggesting a slowdown in wage increases, which, if continued, could help ease inflation this year.