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Inflation hit 9.1% in June

AILSA CHANG, HOST:

Inflation hit a new four-decade high last month, with consumer prices up 9.1% from a year ago. For the typical American family, that meant spending nearly $500 more in June just to maintain the same living standard that they enjoyed last year.

ARI SHAPIRO, HOST:

As prices climb, so does anxiety for many people. Lynda Foster in Tacoma, Wash., says she just has to close her eyes at the grocery store these days.

LYNDA FOSTER: All the spare money is being eaten up by everything else. So if the cost keeps going up, our paycheck doesn't necessarily go up $100, $200, $300 a month.

CHANG: For Jaye Espy in Potomac, Md., high inflation is the difference between feeling comfortable a year ago and feeling the squeeze today.

JAYE ESPY: I'm sort of living on the edge here with just monitoring what that's going to look like in the next six months.

SHAPIRO: Well, let's talk about what's behind these high prices and what can be done about them with NPR's Scott Horsley. Hi, Scott.

SCOTT HORSLEY, BYLINE: Hi, Ari.

SHAPIRO: This new inflation report was even worse than expected. What's going on?

HORSLEY: We're still living with this mismatch between really strong consumer demand and limited supply that just can't keep up. Nowhere is that more evident than at the gas pump. Gasoline prices hit a record high last month, topping $5 a gallon. And rising energy cost accounted for nearly half the overall inflation between May and June. That's a drag for people like Bethany Chambliss. She recently took a job working at a hospital in Lexington, Ky., that pays pretty well but, unfortunately, is 28 miles from her home in Frankfurt.

BETHANY CHAMBLISS: I've got a good gas mileage car, and $3.50 a gallon I could handle. But when it's shot up to almost $5 a gallon, that raise that I received was completely wiped out.

HORSLEY: Chambliss looked into moving closer to work, but found out that apartment rents in Lexington were out of reach. And while gasoline prices have come down in recent weeks, rising rents are likely to keep the pressure on inflation for months to come.

SHAPIRO: Beyond gas prices, where else are prices climbing?

HORSLEY: Grocery prices are up more than 12% in the last year. Chicken, eggs, margarine, they've all gone up even more. Economists sometimes strip out food and gasoline prices because they bounce around a lot and focus on what's called core inflation. But that's also uncomfortably high. People are having to pay a lot more for clothing and medical insurance and new and used cars. Jaye Espy, who we heard from, swapped her big SUV for a more fuel-efficient hybrid. So she is saving some money on gasoline, but now she's got a car note to pay every month. And new car prices are up 12 1/2% from a year ago.

ESPY: The anxiety level is definitely increased because, you know, I'm thinking, will my income still match the price increase? And if I'm laid off or my position is eliminated, that would send everything into a tailspin.

HORSLEY: Now, for now at least, the job market is still really strong. Unemployment's low. Employers added more than 370,000 jobs in June. But when household budgets are being stretched by inflation, that does add to people's economic worries.

SHAPIRO: So what are people doing to cope with these high prices?

HORSLEY: Wages have also been going up, but they're not keeping pace with inflation, so people are having to dip into savings. In some cases, they're carrying a bigger balance on their credit cards. Overall, consumer spending has held up pretty well, even in the face of these high prices. But Lynda Foster, the mom we heard from in Washington state, says she and her husband are being more careful about what they spend money on.

FOSTER: We don't do discretionary fun. We don't go places that we don't have to go. And that's kind of it, is when we have spare money, it's like, what does the family need? What does the family want right now? And then our interests can just be pushed aside.

HORSLEY: Of course, you can only cut corners so much when we're talking about rising prices for essentials like food and shelter and electricity.

SHAPIRO: So let's talk about what can be done about it. The Federal Reserve has been trying already to crack down on inflation. What more can they do?

HORSLEY: The central bank has been aggressively raising interest rates in hopes that will tamp down consumer demand and bring prices under control. The Fed was expected to boost interest rates by another three quarters of a percent when it meets later this month. But after today's report showing inflation even higher than expected, a lot of observers now think the Fed will go even further and boost interest rates by a full percentage point at the July meeting. That's what Canada's central bank did earlier today. Canada, like a lot of other countries, is also fighting high inflation, although prices are not quite as high north of the border as they are here in the U.S.

SHAPIRO: NPR's Scott Horsley, thank you.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.