Record gas prices pushed inflation to a four decade high last month. Inflation hit a new, four-decade high of 9.1% last month, fueled in part by record high gasoline prices. Gas prices have since fallen, but overall inflation is still elevated.

No retreat in the summer heat. Inflation blistering at 9.1% in June

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STEVE INSKEEP, HOST:

New inflation numbers came out this morning. And they were even worse than expected. The consumer price index rose 9.1% for the 12 months ending in June, fueled in part by last month's record gasoline prices. NPR's Scott Horsley is on the line once again. Scott, good morning.

SCOTT HORSLEY, BYLINE: Good morning, Steve.

INSKEEP: OK. So 9.1% sounds pretty bad. How bad is it really?

HORSLEY: Well, annual inflation is now at a new four-decade high. And consumer prices jumped 1.3% just between May and June. Energy costs accounted for nearly half that monthly increase. We do know that gasoline prices have fallen by about 38 cents a gallon after hitting that all-time high last month. But five-dollar gasoline really did put a dent in a lot of people's pocketbooks and their plans.

I talked to Sariah Masterson. She's a mother of two in Provo, Utah. Her family had hoped to take a camping vacation this summer at Natural Bridges National Monument. Once the price of gasoline took off, though, they scrapped the five-hour road trip and opted to stay close to home.

SARIAH MASTERSON: We decided to camp in the backyard. And I just used that money to buy a couple extra cots. And we camped in the back with our kids. The youngest, who's 2 - he woke up in the middle of the night, and then we just all went back inside.

HORSLEY: So definitely a budget vacation there - Masterson's husband is a technical writer. He actually got a new job last year that came with a nice pay raise. But inflation has eaten away at that extra income, and that's true for a lot of people. Average wages in June were up just over 5% from a year ago. But prices have risen faster, and so most people are seeing their real purchasing power eroded.

INSKEEP: Yeah. I guess we just mentioned - that 2-year-old may have enjoyed the staycation better. But grown-ups maybe have many things they're not enjoying nearly as much. What else is rising besides fuel?

HORSLEY: Yeah. It's really broad based. Grocery prices are up more than 12% in the last year. Restaurant prices are up nearly 8%. Prices continue to climb for new and used cars. Another big expense is shelter. You know, rents have been jumping at double-digit rates in some communities.

INSKEEP: Yeah.

HORSLEY: And Masterson certainly noticed that in her Utah neighborhood.

MASTERSON: We have these apartments behind our house that someone just bought and flipped over the last year. But it's really been shocking to the whole neighborhood, like, how much they've raised the prices.

HORSLEY: And rent is not only a big expense for families; it's also a big chunk of the government's inflation measure. Even if you do strip out food and energy measures, which do tend to bounce around a lot, so-called core inflation is still very high. And those price hikes accelerated between May and June.

INSKEEP: How are people managing?

HORSLEY: In some cases, they are making changes - you know, scaling back vacations, driving less, perhaps opting for less expensive options at the supermarket. But a lot of people do have a lifeline, and that is the extra money they socked away during the first couple years of the pandemic. You know, bank accounts ballooned when a lot of people were not going out much or traveling and when the government was, you know, sending out thousands of dollars in relief payments. Most of that government aid has now dried up by now, of course.

But Mark Zandi, who's chief economist at Moody's Analytics, says many people are still sitting on a extra savings cushion, and that's helping them to keep afloat in this tide of rising inflation.

MARK ZANDI: They're paying a lot more to fill their gas tank and buy groceries and pay rent. They have less to spend on everything else. But they're using that savings cushion to kind of keep their spending up. I will say, though, at this high rate of inflation, if it does not moderate in lower-income households, they're going to blow through this extra cash pretty quickly and by early next year, probably run out.

HORSLEY: Now, Zandi is optimistic that by early next year, inflation will be significantly lower. But he acknowledges he and a lot of other people, including the watchdogs at the Federal Reserve, have been wrong in the past. Right now inflation just keeps going up.

INSKEEP: NPR's Scott Horsley. Thanks so much.

HORSLEY: You're welcome.

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