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    Inflation in the United States: What You Need to Know

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    Inflation is a tricky problem, but it has a few clear causes and consequences, and policymakers are working to bring it to heel.The government reported on Friday that consumer prices climbed 8.6 percent over the year through May, the fastest rate of increase in four decades.Americans are confronting more expensive food, fuel and housing, and some are grasping for answers about what is causing the price burst, how long it might last and what can be done to resolve it.There are few easy answers or painless solutions when it comes to inflation, which has jumped around the world as supply shortages collide with hot consumer demand. It is difficult to predict how long today’s price surge will drag on, and the main tool for fighting it is interest rate increases, which cool inflation by slowing the economy — potentially sharply.Here’s a guide to understanding what’s happening with inflation and how to think about price gains when navigating this complicated moment in the U.S. and world economy.What’s Driving InflationIt can be helpful to think of the causes of today’s inflation as falling into three related buckets.Strong demand. Consumers are spending big. Early in the pandemic, households amassed savings as they were stuck at home, and government support that continued into 2021 helped them put away even more money. Now people are taking jobs and winning wage increases. All of those factors have padded household bank accounts, enabling families to spend on everything from backyard grills and beach vacations to cars and kitchen tables.Too few goods. As families have taken pandemic savings and tried to buy pickup trucks and computer screens, they have run into a problem: There have been too few goods to go around. Factory shutdowns tied to the pandemic, global shipping backlogs and reduced production have snowballed into a parts-and-products shortage. Because demand has outstripped the supply of goods, companies have been able to charge more without losing customers.Now, China’s latest lockdowns are exacerbating supply chain snarls. At the same time, the war in Ukraine is cutting into the world’s supply of food and fuel, pushing overall inflation higher and feeding into the cost of other products and services. Gas prices are averaging around $5 a gallon nationally, up from just over $3 a year ago.Service-sector pressures. More recently, people have been shifting their spending away from things and back toward experiences as they adjust to life with the coronavirus — and inflation has been bubbling up in service industries. Rents are climbing swiftly as Americans compete for a limited supply of apartments, restaurant bills are heading higher as food and labor costs rise, and airline tickets and hotel rooms cost more because people are eager to travel and because fuel and labor are more expensive.You might be wondering: What role does corporate greed play in all this? It is true that companies have been raking in unusually big profits as they raise prices by more than is needed to cover rising costs. But they are able to do that partly because demand is so strong — consumers are spending right through price increases. It is unclear how long that pricing power will last. Some companies, like Target, have already signaled that they will begin to reduce prices on some products as they try to clear out inventory and keep customers coming.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Greedflation: Some experts contend that big corporations are supercharging inflation by jacking up prices. We take a closer look at the issue. Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what that means for inflation.How Is Inflation Measured?Economists and policymakers are closely watching America’s two primary inflation gauges: The Consumer Price Index, which was released on Friday, and the Personal Consumption Expenditures index.The C.P.I. captures how much consumers pay for things they buy, and it comes out earlier, making it the nation’s first clear glimpse at what inflation did the month before. Data from the index is also used to come up with the P.C.E. figures.The P.C.E. index, which will be released next on June 30, tracks how much things actually cost. For instance, it counts the price of health care procedures even when the government and insurance help pay for them. It tends to be less volatile, and it is the index the Federal Reserve looks to when it tries to achieve 2 percent inflation on average over time. As of April, the P.C.E. index was climbing 6.3 percent compared with the prior year — more than three times the central bank target.Fed officials are paying close attention to changes in month-to-month inflation to get a sense of its momentum.Policymakers are also particularly attuned to the so-called core inflation measure, which strips out food and fuel prices. While groceries and gas make up a big part of household budgets, they also jump around in price in response to changes in global supply. As a result, they don’t give as clear a read on the underlying inflationary pressures in the economy — the ones the Fed believes it can do something about.“I’m going to be looking to see a consistent string of decelerating monthly prints on core inflation before I’m going to feel more confident that we’re getting to the kind of inflation trajectory that’s going to get us back to our 2 percent goal,” Lael Brainard, the vice chair of the Fed and one of its key public messengers, said during a CNBC interview last week.What Can Slow the Rapid Price Gains?How long prices will continue to climb rapidly is anyone’s guess: Inflation has confounded experts repeatedly since the pandemic took hold in 2020. But based on the drivers behind today’s hot prices, a few outcomes appear likely.For one, quick inflation seems unlikely to go away entirely on its own. Wages are climbing much more rapidly than normal. That means unless companies suddenly get more efficient, they will probably try to continue to increase prices to cover their labor costs.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Inflation Sped Up Again in May, Dashing Hopes for Relief

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    The Consumer Price Index picked up by 8.6 percent, as price increases climbed at the fastest pace in more than 40 years.A surge in prices in May delivered a blow to President Biden and underscored the immense challenge facing the Federal Reserve as inflation, which many economists had expected to show signs of cooling, instead reaccelerated to climb at its fastest pace since late 1981.Consumer prices rose 8.6 percent from a year earlier and 1 percent from April — a monthly increase that was more rapid than economists had predicted and about triple the previous pace. The pickup partly reflected surging gas costs, but even with volatile food and fuel prices stripped out the climb was 0.6 percent, a brisk monthly rate that matched April’s reading.Friday’s Consumer Price Index report offered more reason for worry than comfort for Fed officials, who are watching for signs that inflation is cooling on a monthly basis as they try to guide price increases back down to their goal. A broad array of products and services, including rents, gas, used cars and food, are becoming sharply more expensive, making this bout of inflation painful for consumers and suggesting that it might have staying power. Policymakers aim for 2 percent inflation over time using a different but related index, which is also elevated.The quick pace of inflation increases the odds that the Fed, which is already trying to cool the economy by raising borrowing costs, will have to move more aggressively and inflict some pain to temper consumer and business demand. The central bank is widely expected to raise rates half a percentage point at its meeting next week and again in July. But Friday’s data prompted a number of economists to pencil in another big rate increase in September. A more active Fed would increase the chances of a marked pullback in growth or even a recession. More

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    An ‘Ugly’ Inflation Report Upended Hopes That Price Gains Would Ease

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    Investors and economists had expected to see some moderation in inflation. Instead, prices accelerated again in May, delivering an unwanted surprise.Friday’s inflation report delivered an unwanted surprise for the White House, Federal Reserve and investors.While many economists and some administration officials had expected prices to show some signs of cooling, they got the opposite: a re-acceleration in price growth that makes it more likely the Fed is going to have to slam the brakes on the economy as it looks to slow the fastest pace of inflation in 40 years.As one left-leaning think tank put it, the report was “pretty ugly.”The news dispelled the notion that inflation may already have peaked and poured more fuel on the Biden administration’s biggest domestic policy vulnerability, politically and economically, as midterm elections approach in the fall.It also raised the chances that the Fed, which has already started raising borrowing costs to tamp down demand, will have to make a series of larger interest rate increases over the next few months.The Consumer Price Index data showed mounting evidence that the war in Ukraine was continuing to push the prices of food, gasoline, electric power and other staples higher. Inflation in services, like housing, remained high. Inflation in consumer goods — which administration officials had hoped was slowing as supply chain snarls are worked out in sectors like automobile manufacturing — surged anew after a spring slowdown. Costs for staples like eggs, meat and bread soared, with an index measuring the price of food at home registering its largest annual increase since 1979.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Greedflation: Some experts contend that big corporations are supercharging inflation by jacking up prices. We take a closer look at the issue. Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.For Investors: At last, interest rates for money market funds have started to rise. But inflation means that in real terms, you’re still losing money.The “1970s called and it wants its inflation back. There is no room to sugar coat this,” analysts at TD Securities wrote in a report shortly after the release. “The report should be of great concern for the Fed.”After a senior White House official expressed hope to reporters on Thursday that the report would show indications of an economy that was beginning to shift toward what the president has said is his goal of slower, more stable economic growth with lower inflation, administration officials and their allies did little on Friday to dispel the idea that the numbers were challenging and disappointing.The White House Council of Economic Advisers wrote in a series of Twitter posts that “price increases were broad-based,” while noting that core inflation — which excludes volatile commodities like energy and food — had fallen slightly from its average at the beginning of the year.Outside allies were more blunt. The liberal Economic Policy Institute in Washington wrote on Twitter that the report was “pretty ugly — and shows the pain workers and their families are experiencing.”Republicans blamed the president, as they have for more than a year, for the increases, saying his 2021 economic rescue bill effectively overheated the economy. “The truth is that inflation did not just sneak up on the Biden White House,” Representative Jason Smith of Missouri, the top Republican on the Budget Committee, said on Friday. “The warning signs were there all along.”Mr. Biden and his team have been trying to make a delicate pivot on the inflation issue, calling it his top economic priority and increasingly expressing sympathy for the households struggling to cope with rising prices. They have sought to reassure markets by leaning into a message of trust in the Fed to manage inflation with interest rate increases, while attempting to project a sense of urgency with actions that officials concede will have a small effect, at best, on broad prices — like an announcement this week that the administration was pausing tariffs on some imported solar panels.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Inflation soared again in May, fresh data showed.

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    Prices climbed 8.6 percent in the year through May, a re-acceleration of inflation that makes it increasingly difficult for consumers to afford everyday purchases and poses a major challenge for the Federal Reserve and White House as they try to secure a strong and stable economy.The Consumer Price Index climbed 1 percent from April — far more quickly than in the previous month — and by 0.6 percent after stripping out food and fuel prices, which can be volatile. That so-called core inflation reading matched April’s reading.Fed officials are watching for signs that inflation is cooling on a monthly basis as they try to guide price increases back down to their goal, but Friday’s report offered more reason for worry than comfort. The headline inflation rate was the fastest since late 1981, as a broad array of products and services including rents, gas, used cars, and food became sharply more expensive.Policymakers aim for 2 percent inflation over time using a different but related index, which is also sharply elevated. Central bankers are raising interest rates to make borrowing money more expensive, hoping to cool off consumer and business demand and give supply a chance to catch up, setting the stage for more moderate inflation.The Fed’s attempt to temper inflation by slowing down the economy is contributing to an already sour economic mood. Consumer confidence has been sinking all year as households shoulder the burden of higher prices, and President Biden’s approval ratings have also suffered. Both Wall Street economists and small business owners increasingly worry that a recession is possible in the next year.That glum attitude spells trouble for Mr. Biden and Democrats as November midterm elections approach. As climbing prices weigh on voters’ wallets and minds, policymakers across the administration have been clear that helping to return inflation to a more sustainable pace is their top priority, but that doing so mainly falls to the Fed.Economists warn that wrestling inflation lower could be a slow and painful process. Production and shipping snarls tied to the pandemic have shown early signs of easing but remain pronounced, keeping products like cars and trucks in short supply. The war in Ukraine is elevating food and fuel prices, and its trajectory is unpredictable. And consumer demand remains strong, buoyed by savings amassed during the pandemic and wages that are rising quickly, albeit not enough to fully offset inflation.“There does seem to be considerable resilience in consumer spending,” Matthew Luzzetti, chief U.S. economist at Deutsche Bank, said ahead of the report, explaining that he expects consumer prices to still be climbing at 7.3 percent over the year as of December.While uncertainty is high, economists in a Bloomberg survey expect inflation as measured by the Consumer Price Index to remain at 6.3 percent — lower than today, but still sharply elevated — in the final quarter of 2022. More

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    Inflation moderated in April but was still close to its highest level in 40 years.

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    An important measure of consumer prices showed that inflation slowed in April, but remained close to a four-decade high.The Personal Consumption Expenditures price index rose 0.2 percent last month from March and was up 6.3 percent from a year earlier, the Commerce Department said Friday. That is down from a 6.6 percent annual increase in March, which represented the fastest pace of inflation since 1982.Economists and investors closely watch the index, an alternative to the better-known Consumer Price Index, because the Federal Reserve prefers it as a measure of inflation. The central bank has been raising interest rates and announced that it will begin paring asset purchases in a bid to cool the economy and tame inflation.The slowdown in inflation in April was largely the result of a drop in the price of gasoline and other energy sources. Gas prices soared in February and March largely because of Russia’s invasion of Ukraine, then moderated somewhat in April. They have risen again in recent weeks, however, which could push measures of inflation back up in May. Food prices have also been rising quickly in recent months, a pattern that continued in April.Stripping out the volatile food and fuel categories, consumer prices were up 4.9 percent in April from a year earlier. That core measure, which some economists view as a more reliable guide to the underlying rate of inflation, was up 0.3 percent from a month earlier, little changed from the rate of increase in March.The comparatively tame increase in core prices in the data released Friday stood in contrast to the sharp acceleration in the equivalent measure in the Consumer Price Index report released by the Labor Department this month. The divergence was mostly the result of differences in the way the two measures count airline fares, however, and economists said the Fed was unlikely to take much comfort from the Commerce Department data.“My suspicion is they will probably look through the slowdown,” said Omair Sharif, the founder of the research firm Inflation Insights. He noted that the core index also slowed last fall, only to pick up again at the end of the year, catching the Fed off guard.Many forecasters believe that the headline inflation rate peaked in March and that April marked the beginning of a gradual cool-down. But the recent rebound in gas prices is threatening to complicate that picture. And even if inflation continues to ebb, prices are still rising far more quickly than the Fed’s target of 2 percent over time.“For the past year, inflation has been high and rising and we’re at a point now where it’s high and falling,” said Tim Quinlan, a senior economist at Wells Fargo.The public, Mr. Quinlan added, is unlikely to see the slight moderation in inflation as much to celebrate.“To them, the year over year growth in prices doesn’t matter,” he said. “It’s why does a crappy lunch cost $12 now?” More

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    What’s Your Rate of Inflation?

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    Inflation is at the highest level in four decades. But how you experience it can vary greatly depending on what you eat, how much you travel and your other spending habits. Answer seven questions to estimate your personal inflation rate.

    The numbers above are derived from the Consumer Price Index, the best-known measure of inflation. The C.P.I. is based on a “basket of goods”: The prices of hundreds of commonly purchased goods and services, from cookies to cars to college tuition, are blended together, with each product counted in proportion to its share of overall spending.

    Clothing, for example, accounts for about 2.5 percent of the average American’s monthly spending, so clothes prices make up that share of the index. But those are averages — if you spend more than 2.5 percent of your budget on clothes, your personal rate of inflation will look different.

    Prices are rising pretty much across the board now, but the increases are particularly rapid in some categories, like meat, cars and travel. People who spend a lot on those categories are experiencing much faster inflation as a result.

    The calculator above adjusts your rate of inflation based on how much more or less you spend on different products than the average American. It doesn’t account for other factors, like whether you live in a more expensive part of the country or are more likely to shop around for bargains. Even so, it reveals a wide range of different experiences: Based on how you answered the questions above, you might have a “personal inflation rate” as low as 5 percent or as high as 15 percent.

    Even a 5 percent inflation rate is high by the standards of recent history – before the pandemic, prices in the United States were rising about 2 percent a year. But when it comes to inflation, small differences have a big impact. At 5 percent, prices double in about 15 years. At 7 percent, prices double in just over 10 years. And at 15 percent, prices double in only five years.

    Oil price boom

    Perhaps the clearest case study in how people experience inflation differently is gasoline.

    Gas prices have shot up in recent months, partly because Russia’s invasion of Ukraine roiled global energy markets. Prices were up 48 percent in March from a year earlier, accounting for a fifth of the increase in the overall Consumer Price Index. More

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    How Rising Mortgage Rates Are Affecting the Housing Market

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    Mortgage costs have jumped as the Federal Reserve has raised rates. With higher rates come fewer offers.Luis Solis, a real estate agent in Portland, Ore., marked a milestone weekend late last month. It was the first time in two years that one of his listings made it to Monday without any offers.This particular house was listed at $500,000, and after a Saturday open house there were promises of at least three bids, including one for $40,000 over the asking price. Then Monday came, and there were none. Then Tuesday, and Wednesday. An offer finally came in, but instead of being 10 to 15 percent higher than the listing — something that became almost standard at the height of the coronavirus pandemic’s housing market — it was right at $500,000. And it was the only one. And the buyer took it.“We didn’t have the competing offers that would drive up the price,” Mr. Solis said. “It’s not crazy like it was.”Taking some air out of the crazed market — and the hot economy in general — is precisely what the Federal Reserve wanted to do when it raised its key interest rate in March and signaled more increases to come. Mortgage rates have surged in response, jumping to 5 percent from slightly more than 3 percent since the start of the year.That rise means the monthly payment on a $500,000 house like the one Mr. Solis just sold would be about $500 more a month than it was at the end of last year, assuming a fixed-rate mortgage and 20 percent down payment. And the higher cost comes on top of a more than 30 percent rise in home prices over the past two years, according to Zillow.Now early data and interviews across the industry suggest that many buyers have finally been exhausted by declining affordability and cutthroat competition, causing the gravity-defying pandemic housing market to start easing up.Open houses have thinned. Online searches for homes have dropped. Homebuilders, many of whom have accrued backlogs of eager buyers, say rising mortgage rates have forced them to go deeper into those waiting lists to sell each house. In a recent survey of builders, Zelman & Associates, a housing research firm, found that while builders were still seeing strong demand, cancellations had inched up, though still well below historically low levels. Builders have also grown increasingly concerned about rising mortgage rates and surging home prices.“There is a lot more concern than there had been,” said Ivy Zelman, chief executive of Zelman & Associates.By any standard that prevailed before 2020, this would be a hot real estate market. Home prices remain high, and not only is there little sign they will fall anytime soon, but many economists predict a continued rise through the year. Still, after two years of torrid demand, agents had become accustomed to fielding multiple offers for each listing and setting price records each weekend. That frenzy, brought on by pandemic migrations and the growing centrality of the home as a space where people both live and work, is now subsiding.“We’re seeing some early indications that a growing share of home buyers, especially in expensive coastal markets, are getting priced out,” said Daryl Fairweather, chief economist at Redfin.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: Times readers sent us their questions about rising prices. Top experts and economists weighed in.Interest Rates: As it seeks to curb inflation, the Federal Reserve announced that it was raising interest rates for the first time since 2018.How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.For buyers, however, the market will still feel plenty competitive. Even if prices aren’t rising at the pace of the past two years, homes are selling within a week of being listed and posting no significant price declines.Construction in Missoula, Mont. Among homebuilders, “there is a lot more concern than there had been,” said Ivy Zelman of Zelman & Associates.Tailyr Irvine for The New York TimesThat rising mortgage rates have not had more of an effect shows how difficult it is to tamp down prices and bring demand into balance in an economy where a lack of supply — marked by half-empty car lots, furniture order backlogs and a paucity of homes for sale — is playing a guiding role.In the prepandemic world of bustling offices and smoothly functioning supply chains, such a steep rise in mortgage rates, on top of years of double-digit price appreciation, would have economists predicting a severe drop in demand and maybe even falling prices. Those trends would have echoed through the broader economy, with fewer people spending on moving vans and new couches, and as existing homeowners felt on less solid financial footing and potentially curbed their own spending. Instead, economists are predicting that prices will continue to rise — by double digits in some forecasts — through the year.“I don’t think it’s going to stop the housing market,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association.The problem is there are so few homes for sale that even a slower market is unlikely to create enough inventory to satisfy demand anytime soon. For years the United States has suffered from a chronically undersupplied housing market. Home building plunged after the Great Recession and remained at a recessionary pace long after the economy and job market had recovered. Even today, the pace of home building remains below the heights of the mid-2000s, before the 2008 financial crisis and housing market crash.This makes it a good time to be a seller — assuming you don’t need to buy. Christopher J. Waller, a governor at the Fed, is living this out.“I sold my house yesterday in St. Louis to an all-cash buyer, no inspection,” Mr. Waller said in panel discussion on Monday. “But I’m trying to buy a house in D.C., and now I’m on the other side, going: ‘This is insane.’”He noted that the sharp rise in mortgage rates over recent months should have an effect on what happens with housing.The recent lack of new building was not for lack of interest. Members of the millennial generation, now in their late 20s to early 40s, are in their prime home buying years. Their desire to buy houses and start families has collided with scant supply, leading to an increase in prices.Shutdowns in the early months of the pandemic slowed home building, but housing starts have been on an upswing lately. New home completions remain low, however, because the tight labor market and supply chain disruptions have homebuilders scrambling to find wood, dishwashers, garage doors — and workers.Inflation F.A.Q.Card 1 of 6What is inflation? More