This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.
Author: Kate Whiting, Senior Writer, Formative Content
- An economist has warned that the US is on the verge of a ‘cost of living’ crisis due to rapid inflation.
- Food prices increased by 9.4% on average in the year to April – their largest 12-month rise in 40 years.
- Around 16% of Americans say they are struggling financially, compared with 66% of people in Turkey, according to an Ipsos poll for the World Economic Forum.
As inflation continues to rise across the globe, the United States is on the verge of a cost of living crisis, an economist has warned.
Mohamed El-Erian told CNBC on 11 May: “It’s just a matter of time before we’re talking about a cost of living crisis.”
How rising inflation is whisking the cost of living crisis
Although the rate of inflation slowed in April – the Consumer Price Index for All Urban Consumers rose by 0.3% during the month, after climbing by 1.2% in March – annual inflation remained at its highest for 40 years, according to the US Bureau of Labor Statistics.
The all-items index – a measure of prices for various goods and services – has risen by 8.3% in the past 12 months, before seasonal adjustment. And the food index has increased by 9.4%, its largest 12-month increase since the period ending April 1981.
On 4 May, the US Federal Reserve – the country’s central bank – moved to tackle rising inflation by making its biggest interest rate hike in 22 years.
“Inflation is much too high and we understand the hardship it is causing,” Federal Reserve Chairman Jerome Powell said. “We are moving expeditiously to bring it back down.”
The above chart takes a snapshot of how prices for 11 everyday household purchases have risen over the past 20 years.
In April, the food index increased by 0.9% – the 17th consecutive month it has risen, according to the Bureau of Labor Statistics.
Five of the six major grocery store food group indexes rose over the month, with dairy and related products climbing the most, at 2.5% – the largest monthly increase since July 2007. The price of eggs rose by 10%.
The only food group to drop in price in April was fruit, which fell by 0.5%.
What is the Consumer Price Index?
The Consumer Price Index (CPI) measures the change in prices that consumers pay for goods and services, explains the Bureau. It reflects spending patterns for each of two population groups: all urban consumers – which represent about 93% of the population – and urban wage earners and clerical workers.
Inflation for all urban consumers is measured by two indexes: the Consumer Price Index for All Urban Consumers (CPI-U) and the Chained Consumer Price Index for All Urban Consumers (C-CPI-U).
The CPIs are based on prices for food, clothing, shelter, fuels, transportation, doctor and dentist services, medicine, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country.
How US and global citizens feel about the cost of living
April’s inflation figures and May’s interest rate rise come as a quarter of the global public say they are struggling financially.
In the US, 16% say they are finding the situation quite difficult or very difficult, according to an Ipsos poll for the World Economic Forum, compared to 66% of Turkish citizens.
People in the US are the most positive about disposable income over the coming year, with 26% expecting it to rise, although a third expect it to fall. However, around two-thirds of Turkish (63%) and British citizens (60%) expect their disposable income to decline.
It remains to be seen whether measures taken to reduce inflation can curb the global cost of living crisis.
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