The Consumer Price Index (CPI) rose 8.6% between May 2021 and May 2022, meaning that inflation surpassed record highs, a Friday morning report from the U.S. Bureau of Labor Statistics revealed.
The new figure surpassed the Dow Jones estimate of 8.3% year-over-year inflation — the same level seen in April 2022, according to CNBC.
Inflation refers to the percent change in the price level over a given period of time. The CPI, for example, tracks a hypothetical basket of goods and services that represents typical spending for an American household. A similar metric — Producer Price Index (PPI) — tracks price levels for businesses.
Though unemployment remains low in the United States, inflation has led to a drop in real average hourly earnings. Even as wages nominally grew between April 2021 and April 2022, real earnings dropped by 2.6% due to the faster rate of inflation.
In a recent CNBC survey of chief financial executives, more than 40% believed inflation is the main external risk factor for their business. Meanwhile, 23% point to Federal Reserve policy and 14% point to the war in Ukraine.
Indeed, the Fed hiked rates by 0.5% last month — the largest rate increase since May 2000 — in an attempt to curb rising price levels. The move followed a 0.25% rate hike from near-zero levels three months ago. As employment numbers remain robust, the central bank likely interprets a strong labor market as a sign that officials should keep their plan to raise rates throughout the year.
President Joe Biden and Treasury Secretary Janet Yellen met last month with Fed Chair Jerome Powell. “He’s wanting to show that he’s fully supportive of the Fed’s move to hike interest rates to deal with inflation,” Desmond Lachman, a former International Monetary Fund official, told The Daily Wire at the time, noting that Biden also needs “to show that he is serious about inflation” from a political standpoint.
Indeed, polls consistently indicate that voters are worried about rising price levels ahead of the midterm elections.
When asked by a Harvard survey about inflation, 95% of respondents said that inflation is “very serious” or “somewhat serious.” A plurality — 47% — said that the Biden administration is responsible. Another poll from The Washington Post and ABC News revealed that 94% of Americans were either “upset” or “concerned” about the impact of skyrocketing inflation. Biden’s approval rating was underwater, with 42% of respondents approving of his work and 52% disapproving.
Amid the Russian invasion of Ukraine, gas prices reached $5 per gallon in the United States on Thursday morning. “It’s a very visible product — it’s something that psychologically is quite a big deal, because you fill up your car every week or so,” Lachman added, affirming that the high prices are causing Americans to “pull back” on spending.
On the day of Biden’s inauguration, gas cost $2.39 per gallon. Yet as Americans contend with the higher fuel prices, the Biden administration is facing criticism for nixing expansions to the Keystone XL Pipeline last year and dragging its feet on issuing oil and gas permits. Soaring energy prices raise business’ costs and reduce their profitability — an effect that ripples through the economy and causes prices for all goods to increase.
When asked about his energy policies in light of the rising prices, Biden has noted his decision to release millions of barrels from the Strategic Petroleum Reserve. Meanwhile, Biden has more recently tried to make overtures to leaders of top oil-producing nation Saudi Arabia — with which the United States’ relationship is currently tense.