Inflation Accelerates and Gas Hits Record $5: What Else Is Driving Prices and What the Fed Will Do | Univision Money News

May produced another month with worrying inflation figures. The consumer price index rose 1% from April and stood at 8.6% in the last 12 months through May. Readings that put the Federal Reserve (Fed) in trouble and have opened the door to a cycle of increases in the key interest rate that is even more aggressive than the one that is underway.

Officials of the Fed and the consensus of economists take for granted a rise of half a percentage point in the meeting that the central bank of the United States will hold next Wednesday. It will follow the rise of a similar magnitude approved in May, which was the strongest since 2000.

For July, however, some experts believe the Fed will decide on a more robust hike of three-quarters of a percentage point or 0.75. Fed data show that the last time it decided on an increase like that was in November 1994. It was the last – and the most aggressive – of the string of hikes with which that year the then president of the Fed, Alan Greenspan, prevented the economy from overheating and inflation from running amok.

The scenario with which the Fed acts at this time is different, both in the country and in the world.

The war in Ukraine has affected supplies of some raw materials, including energy and food, two crucial factors in inflation that in the United States has been at 40-year highs for months. The covid-19 pandemic continues to impact supply chains as well, especially those that originate in China.

Added to this are the factors within the United States that make it difficult to slow down inflation and bring it quickly to the usual range of 2% per year, including strong demand and a tight labor market that supports wages. The Federal Reserve itself believes that it will take time for price rises to come down to that point: it has estimated that it will be close to 3% by the end of next year and that it will be at that coveted 2% by the end of 2024.

Here we explain the factors that are preventing inflation from giving up.

Gasoline: its prices rose 48.7% annually in May and the gallon set a new record

They had given a break in April, but resumed their climb in May. Energy prices concentrate the greatest increase in the price basket in recent times. Those of gasoline, for example, climbed 4.1% in May compared to April and 48.7% in the 12 months ending in May.

And on Saturday, a gallon of gas hit another record by averaging just over $5 nationally, according to the AAA drivers’ association, heralding even higher prices through the summer.

“The dynamics of falling gasoline supplies and rising demand are driving up prices at service stations. This coupled with high oil prices means that gasoline prices are likely to remain elevated in the near term.” , the AAA said in an analysis.

Housing: some prices in this sector rose 5.5% annually in May

What happens in this area is key, since the prices of what is known in English as ‘shelter’ represent more than 30% of the price basket that makes up the consumer price index, the indicator that tells us how the inflation.

The real estate market has registered a stratospheric advance in prices in a general way, especially the prices of houses and apartments sold that end up being transferred in some cases to the people who rent. In places like Miami it has been so steep that some rents eat up 60% of what a person earns per month.

And in that sector there is also a “lag effect” that causes prices there to fall at a slower rate, explains an analyst at the ING insurance company. “Rental contracts typically change only once a year when they have to be renewed, so they take time” to show a slowdown in their prices, says James Knightley, chief international economist at ING, in a commentary. Therefore, “housing components (within the consumer price index) are not likely to decline anytime soon,” he adds.

Shelter prices accelerated and have risen 5.5% in the 12 months ending in May.

Food: its prices climbed 10.1% annually in May

This sector is also affected by the increased demand from consumers in the country and the problems with some supplies of raw materials such as wheat and sunflowers due to the war in Ukraine. Both Ukraine and Russia are key producers of these two raw materials.

In the poorest households, this escalation is felt with particular force, since they allocate a good part of their income to the purchase of food. A look at the survey the Census Bureau conducts of households across the United States helps to understand. Of the 35.1 million Hispanic households that responded to the survey conducted in the week of April 27 to May 9, 6.7 million recognized that sometimes or frequently they do not have enough food on their tables.

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