U.S. inflation surged to a four-decade high in June due to increasing gasoline prices and food and rent prices that squeezed household budgets and pressured the Federal Reserve to raise interest rates quickly–a trend that increases the possibility of a recession.
As per a report, the government’s consumer price index climbed to 9.1% over the past year, the biggest yearly increase since 1981, with nearly half of the increase due to higher energy costs.
For the 72-year-old Marcia Freeman, who is retired and lives off of a pension, there’s no escape from the increasing expenses.
“Everything goes up, including cheaper items like store brands,” said Freeman, who visited a food bank near Atlanta this week to try and gain control of her grocery costs. Grocery prices have jumped 12% in the past year, the steepest climb since 1979.
Accelerating inflation is a vexing problem for the Federal Reserve, too. The Fed is already engaged in the fastest series of interest rate hikes in three decades, which it hopes will cool inflation by tamping down borrowing and spending by consumers and businesses.
The U.S. economy shrank in the first three months of the year. Many analysts believe that this trend continued in the second quarter.
“The Fed’s rate hikes are doing what they are supposed to do, which is kill off demand,” said Megan Greene, global chief economist at the Kroll Institute. “The trick is if they kill off too much and we get a recession.”
As confidence among consumers in the economic outlook declines, so have the approval ratings of President Joe Biden, which pose a serious threat to Democrats during the November congressional elections.
Consumers unleashed a flood of unplanned spending, fueled by massive federal assistance, ultra-low borrowing costs, and savings they’d amassed while staying in their homes. As home-bound Americans spent a lot on furniture, appliances, and fitness equipment, shipping and factory firms struggled to keep up.
As COVID concerns have decreased in recent months, consumer spending has shifted from goods to services. But instead of bringing down inflation by reducing prices, the cost of cars, furniture, and other goods has continued increasing, while restaurant costs, rents, and other services are also getting more expensive.
Last month’s year-over-year consumer prices led to an 8.6% annual jump in May. From May to June, prices rose 1.3%, following a 1% increase from April to May.
Some economists believe inflation might be reaching a short-term peak. Gas prices, for example, have fallen from the eye-watering $5 a gallon reached in mid-June to an average of $4.63 nationwide Wednesday–still far higher than a year ago.
This story originally appeared on AP News.