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Inflation Climbs Even Higher With Prices Rising 5% In May


If the highways are calling out to you this summer, but you need to rent a car, you better pack some extra cash. The price of rental cars has more than doubled in the last 12 months. That's one of many factors driving inflation to its highest level in nearly 13 years. Prices have also soared for air travel, washing machines and used cars. As the U.S. economy rebounds from the pandemic recession, demand for many items is outstripping supply.

NPR's Scott Horsley joins us now to talk about this. Hey, Scott.


CHANG: Hey. So we're just learning today that overall consumer prices were 5% higher in May than they were a year ago. And I understand that is the highest inflation that there's been since 2008. What's going on?

HORSLEY: There's lots of pent-up demand and just not enough supply. You know, rental cars are an extreme example, but they do help to illustrate the broader picture. In May of last year, almost nobody was renting a car. The rental car companies weren't even sure if they'd be in business today. They sold off hundreds of thousands of cars just to stay afloat. And now we've got a lot of newly-vaccinated Americans who are traveling again. And there aren't enough rental cars to go around. The people who put together the Consumer Price Index say rental car prices jumped 110% in the last year. And Denver travel agent Pamela Wilson says that's if you can get a car at all.

PAMELA WILSON: What was maybe 500 is now a thousand. Places that you were always able to find a car, it's not there at all. And we're talking every car company - Avis, Budget, Hertz. You're checking all of these car companies, none of which are available.

HORSLEY: And a little consumer tip, Ailsa. Wilson's been telling clients who do find a rental car to reserve to pay in advance, or else they might find themselves replaying that classic "Seinfeld" scene.


UNIDENTIFIED ACTOR: (As character) Unfortunately, we ran out of cars.

JERRY SEINFELD: (As self) But the reservation keeps the car here. That's why you have the reservations.


UNIDENTIFIED ACTOR: (As character) I know why we have reservations.

SEINFELD: (As self) I don't think you do.

CHANG: (Laughter) But this is not so funny in real life, right, Scott? I mean, how does this jump in rental car prices fit into the broader inflation story?

HORSLEY: Well, rental car companies are trying to rebuild their fleets to meet this surge in demand, but new cars are hard to come by. We've all heard about the shortage of computer chips that's plaguing automakers. So the rental companies are buying more used cars, and that's driving up the cost of used cars. That's up nearly 30% in the last year. And it's not just carmakers who are struggling with a lack of computer chips. Appliances use a lot of chips now, too. Richard Clark is a sales manager with Kelley Appliances (ph) in Aiken, S.C. He says appliance manufacturers are also having a hard time keeping up with demand.

RICHARD CLARK: So they go with the most popular types, which are the stainless steel appliances. And that's kind of king right now. So anybody that comes in here wanting colors of appliances are going to be waiting quite a while.

HORSLEY: Appliance prices have jumped more than 12% in the last year. And washing machines, Ailsa, are really in a spin cycle. That's up more than 26%.

CHANG: I see what you did there. All right. Well, both the White House and the Federal Reserve are saying that this jump in inflation is temporary. But what do they say is going to bring prices back down?

HORSLEY: Well, some of this is just payback for the sharp drop in prices we saw a year ago, when the pandemic first hit. So airfares, for example, they're up 24% in the last year. But that's really just getting back to normal. And once that happens, prices should level off. Some of the bottlenecks we've talked about, like with computer chips, should get worked out, although it's going to take some time. The big story here is demand has bounced back more quickly than businesses have been able to ramp up. And one thing that will help is businesses hiring more of the millions of people who are still out of work.

CHANG: And what if this higher inflation is not temporary?

HORSLEY: Well, then the Federal Reserve would have to step in and raise interest rates, but that's really strong medicine. It slams the brakes on the economy, so nobody wants to see that happen prematurely. For now, markets seem to be buying this argument from the Fed and the Bush administration that the run-up in inflation is temporary. The monthly inflation reading for May was actually lower than for April. So there are some signs the high pressure on prices is being turned down already.

CHANG: That is NPR's Scott Horsley. Thank you, Scott.

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.