An inflation gauge closely watched by the Federal Reserve jumped 6.8% in June from a year earlier, the biggest increase in four decades, leaving Americans without relief from rising costs.
Government figures on Friday underscored the persistence of inflation that is eroding Americans’ purchasing power, weakening their confidence in the economy and threatening Democrats in Congress in the run-up to November’s midterm elections.
Month-on-month, prices rose 1% from May to June, faster than the 0.6% rise from April to May and the biggest increase since 2005.
A separate government report on Friday reinforced the fact that the economy remains mired in inflationary pressures. A measure of employee wages excluding government workers rose 1.6% in the April-June quarter, matching a record reached last fall. Higher wages can fuel inflation if companies pass on their higher labor costs to their customers, as they often do.
The Fed closely monitors this report, known as the labor cost index, and takes it into account in its interest rate decisions. The sharp rise in the index last fall contributed to the Fed’s policy shift toward a credit tightening.
The government also reported on Friday that consumer spending managed to outpace inflation last month, rising 0.1% from May to June after adjusting for price changes. Consumer spending, the main engine of the economy, has weakened in the face of high inflation. But for now, it’s still helping to fuel inflation, with demand still strong for services, ranging from airline tickets and hotel rooms to restaurant meals and cars.
However, many retail and consumer goods chains say inflation is putting pressure on shoppers and limiting how far their money goes, a sign consumer spending could weaken further.
This week, Walmart said its profits would fall as its customers spend more on more expensive food and gasoline, which prevents them from buying clothing and other discretionary items. Also, Best Buy lowered its sales and earnings forecasts as rising inflation has forced consumers to cut back on appliance purchases.
Procter & Gamble, which makes Tide and Pampers laundry detergent, among many other consumer staples, said its customers are also holding back after spending more in the spring.
Inflation has been rising so fast that despite the pay raises many workers have received, most consumers are falling behind on cost-of-living expenses.
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