An inflation gauge closely tracked by the Federal Reserve jumped 6.8% in June from a year ago—the biggest increase in four decades—leaving Americans with no relief from surging costs.
This morning’s government figures underscored the persistence of the inflation that is eroding purchasing power, dimming consumers’ confidence in the economy and threatening Democrats in Congress in the run-up to the November midterm elections.
On a month-to-month basis, prices rose 1% from May to June, faster than the 0.6% rise from April to May and the biggest such jump since 2005.
A separate government report this morning reinforced the fact that the economy remains gripped by inflation pressures. A measure of employees’ wages, excluding government workers, jumped 1.6% in the April-June quarter, matching a record high reached last fall. Higher wages can fuel inflation if companies pass their higher labor costs on to their customers, as they typically do.
The government also reported this morning that consumer spending managed to just outpace inflation last month, rising 0.1% from May to June after adjusting for price changes. Consumer spending, the main driver of the economy, has weakened in the face of high inflation. But for now, it’s still helping fuel inflation, with demand still strong for services, ranging from airline tickets and hotel rooms to restaurant meals and autos.
Many retail and consumer goods chains, though, say inflation is squeezing shoppers and limiting how far their money goes—a sign that consumer spending could further weaken.
This week, Walmart said its profits would fall because its customers are spending more on pricier food and gas, leaving them less able to buy clothes and other discretionary items. Likewise, Best Buy downgraded its sales and profit forecasts because surging inflation has forced consumers to reduce their purchases of electronics appliances.
Procter & Gamble, which makes Tide detergent and Pampers among other consumer staples, says its customers are also reining in their purchases after having spent more heavily in the spring. Read the full story.
