Surging gas prices likely drove US inflation to 40-year high

WASHINGTON (AP) — U.S. inflation likely reached a new 40-year high in June, driven up by a spike in gas costs, more expensive food and rent, and pricier cars and hotel rooms.

A government report Wednesday is expected to show that consumer prices soared 8.8% in June compared with a year earlier, according to data provide FactSet. That would be an increase from 8.6% in May and the biggest yearly rise since December 1981.

Inflation at that level would make it highly likely the Federal Reserve will implement another large interest rate increase at its next meeting in two weeks. Higher rates are intended to cool consumer and business spending and slow the economy and inflation.

Such large price increases would also highlight the brutal impact that inflation has had on many families' finances, as the costs of many necessities has soared at a faster pace than incomes. Lower-income Americans and Black and Hispanic families have fared worse, as a greater percentage of their budgets are spent on items like gas and food.

So far in July, however, gas prices have fallen from the eye-watering $5 a gallon reached in mid-June to an average of $4.66 nationwide as of Tuesday. That is still far higher than a year ago, but the drop points to the potential for sharply lower inflation this month and possibly in August.

Still, rising prices have caused a steep decline in consumers' confidence in the economy, dragged down President Joe Biden's approval ratings and present major political risks for congressional Democrats this fall. Forty percent of U.S. adults said tackling inflation should be a top government priority this year in a June AP-NORC poll, up from just 14% in December.

Americans sharply ramped up their spending as the pandemic waned a year ago, initially splurging on furniture,...