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Spike in prices tightens the squeeze on US consumers

American consumers were faced by another spike in prices in May. The price increased 0.6 percent over April and 5 percent over the past year, causing the biggest 12 months inflation spike since 2008.

As reported by the Labor department, the spike reflected in a certain range of goods and services like shop, travel, dine-out, entertainment etc. as people were increasingly attracted to these in a rapidly reopening economy.

The increased consumer demand is exceeding the supply in industries like lumber and steel, chemicals, semiconductors, autos, computer equipment etc. causing shortage of components and inflated prices.

As people have started stepping out of home slowly after the pandemic, the demand for manufactured goods and services like airlines and hospitality has also increased accompanied by rising inflation in these areas.

The government reported on Thursday, June 10 that core inflation rose 0.7 percent in May after a bigger 0.9 percent increase in April and had risen 3.8 percent over the past year. This percentage was excluding the volatile energy and food costs. The price of new cars also rose 1.6 percent which was the largest jump since 2009.

The shortage of semiconductors has been due to the disturbance in supply chain because of a jump in new and used vehicles. The lack of computer chips has led to limited production of new cars which has reduced the supply of new cars. The demand for vehicles has soared and so have the prices.

Among other categories, higher prices were evident in household furnishings which rose 0.9 percent, airline fares rose 7 percent and food prices rose 0.4 percent with beef prices jumping 2.3%. Energy costs remain the same, still up 56.2 percent in the past year.

There has also been a rise in the government’s month-to-month readings of inflation which are not subject to any distortions by the coronavirus pandemic. According to some economists, if the situation worsens and prices continue to accelerate for too long, expectations of further price increases will take hold. This could intensify demands for greater pay and is likely to trigger the kind of wage-price spiral that plagued the economy in the 1970s.

As of now, rise in the prices of commodities is forcing Americans to pay more for everything ranging from meat to gasoline. Prices for corn, grain and soybean have shot up to the highest level since 2012. The price of lumber that is used to build homes and price of more expensive commodities like polyethylene and wood pulp have caused higher consumer prices for things like toilet paper, diapers and other products sold in plastic containers.

From industry perspective, Kimberly-Clark, maker of Kleenex and Scott toilet paper is hoping to raise prices on about 60 percent products, Procter & Gamble is also planning to raise prices for its baby, feminine and adult care products. Many other businesses are also experiencing upward pressure on their costs such as higher wages.


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