Rise in Gas Prices Pushes Inflation To 40-Year High In US

Inflation in the United States reached a new 40-year high in June. This was likely due to a rise in gas prices, higher food and rent costs, and more expensive cars and rooms in hotels. According to FactSet data, Wednesday's government report will show that consumer prices rose 8.8% in June over a year ago. This would represent an 8.6% increase over May and the largest annual rise since December 1981.

If inflation reaches this level, it is highly probable that the Federal Reserve will increase its interest rates at its next meeting in just two weeks. Higher rates are designed to reduce consumer and business spending, slow down the economy, and infuse inflation. These large price increases are a sign of the devastating impact inflation has had on many families' financials. The cost of many necessities has increased at a faster rate than income, and this is why such high prices. As a larger percentage of their budgets is spent on things like food and gas, lower-income Americans, have had to suffer.

However, gas prices dropped from $5 per gallon in mid-June to $4.66 on Tuesday. This is still a significant increase over a year ago, but it indicates that inflation could be sharply lower this month and possibly in August. Rising prices have led to a sharp decline in consumer confidence in the economy. This has dragged down President Joe Biden’s approval ratings and presents major political risks for congressional Democrats in this fall. In a June AP/NORC poll, 48% of Americans said that tackling inflation should be a top priority for the government this year. This is up from 14% in December.

As the pandemic subsided a year ago Americans increased their spending. They initially spent a lot on furniture and exercise equipment. But in recent months, they have been shifting to traveling, dining out, and attending concerts and movies. Due to government stimulus checks, the demand surged and prices went up.
According to FactSet, economists predict that Wednesday's report on prices will show a 1.1% increase in June from May. Economists believe that up to half of this gain could be attributed to higher pump prices.