WASHINGTON (AP) — Gas prices are rising. Auto prices are soaring. Consumer goods companies are charging more for household basics like toilet paper, peanut butter and soft drinks.
All of which is resurrecting fears of an economic threat that has all but disappeared over the past generation: Runaway inflation. It occurs when prices for most goods and services not only rise but accelerate, making the cost of living steadily more expensive and shrinking the purchasing power of Americans' earnings and savings.
Keep scrolling for a Q&A on inflation and what can be done to stop it
On Wednesday, the government reported that consumer prices for goods and services surged 0.8% in April — the largest monthly jump in more than a decade — and that year-over-year inflation reached its fastest rate since 2008.
Growing jitters about inflation have contributed to a sharp sell-off in stock prices this week. Any significant acceleration of inflation would exert a drag on the market and potentially imperil the economic recovery.
In the past, rising inflation has usually led to higher pay as workers have demanded and received raises to keep pace. In fact, inflation can't really accelerate for long without sizable wage gains. Yet pay raises — if they do occur — typically lag behind price increases, thereby squeezing consumers at least temporarily. And eventually, pay gains themselves will fuel further inflation: Companies raise prices further to offset higher wages for their employees.
Some companies, including Amazon, have recently raised or said they plan to raise wages.
Not since the late 1960s and early '70s has the United States endured chronic high inflation, with consumer prices rising at or near double-digit percentages from one year to the next. In fact, the reverse has been true for about a decade: Inflation has remained persistently below the 2% annual target set by the Federal Reserve. Under Chair Jerome Powell, the Fed is betting that it can keep rates ultra-low even as the economic recovery kicks into high gear — and that it won't have to quickly raise rates to stop runaway inflation.
Few economists think the nation is on the verge of uncontrollably high inflation. But worries among businesses, consumers and investors about uncomfortably high inflation are growing.
Q&A: Why are fears of high inflation getting worse?
What's behind the concerns about inflation?
Will Americans' paychecks increase, too?
It's the Fed's job to keep prices in check. What do its officials think?
Why is the Fed so sure that price increases will prove fleeting?
What will the Fed do if inflation stays too high?