The US economy saw both good and bad news this week. Economic growth beat expectations and layoffs stayed low. At the same time, inflation continued to make daily life more expensive with consumers struggling with higher fuel prices, costlier electronics and rising mortgage rates.The latest figures showed inflation accelerating and consumer spending slowing, even as businesses stepped up investment in artificial intelligence.
Inflation climbs to a three-year high
The Federal Reserve’s preferred measure of inflation reached its highest level in three years in May, largely driven by rising petrol prices.According to the US commerce department, consumer prices increased 4.1% compared with a year earlier, marking the biggest annual rise since April 2023. Inflation rose 0.4% on a monthly basis in May, matching April’s increase and slowing from the 0.7% recorded in March.Apart from higher fuel prices, increasing costs of semiconductors and other computer equipment, which remain in strong demand for artificial intelligence infrastructure, also contributed to the rise.
AI demand pushes up Apple prices
The growing demand for AI-related chips has also started affecting retail prices.Apple announced price increases across several Mac and iPad models, saying a shortage of memory chips caused by the artificial intelligence boom had made manufacturing more expensive.The company described the situation as an “unprecedented challenge” for the consumer electronics industry.“We have never seen a component price increase this much, this quickly,” the company said in a written statement.The entry-level MacBook Neo now costs $699, compared with $599 earlier. The price of the 512 gigabyte MacBook Air has increased from $1,099 to $1,299, while the one terabyte MacBook Pro now sells for $1,999 instead of $1,699.Among tablets, the 128 gigabyte iPad Air now costs $749, up from $599, while the 256 gigabyte iPad Pro Wifi has risen from $999 to $1,199.
Stronger GDP, but consumers pull back
Despite higher inflation, the US economy expanded at an annual pace of 2.1% during the January-March quarter, according to the Commerce Department’s final estimate released on Thursday.The latest figure marked a recovery from the 0.5% growth recorded during the final three months of 2025, when a 43-day federal government shutdown weighed on economic activity. It was also higher than the department’s earlier estimate of 1.6% growth for the quarter.Business investment recorded a sharp increase, likely reflecting stronger investment linked to artificial intelligence.Consumer spending, however, weakened noticeably. Spending, which accounts for around 70% of US economic activity, declined sharply from both the previous quarter and the Commerce Department’s earlier estimate, suggesting households may be cutting back as higher petrol prices resulting from the war with Iran add to living costs.
Mortgage rates edge higher again
Borrowing costs for homebuyers also increased slightly during the week.Freddie Mac said the average rate on a 30-year fixed mortgage rose to 6.49%, up from 6.47% a week earlier. The rate has remained close to 6.5% over the past six weeks. During the same period last year, the average stood at 6.77%.Higher mortgage rates can increase monthly repayments by hundreds of dollars, reducing the purchasing power of borrowers.The average rate on a 15-year fixed mortgage, commonly used by homeowners refinancing loans, also increased to 5.84% from 5.81% a week earlier. A year ago, the average rate was 5.89%.
Labour market remains resilient
The latest employment data pointed to continued strength in the labour market.Applications for unemployment benefits fell by 12,000 to 215,000 in the week ending June 20, according to the Labour Department. The figure came in below the 225,000 applications expected by analysts surveyed by FactSet.Weekly jobless claims are widely regarded as a near real-time measure of layoffs and the health of the US jobs market.US markets finished the week on a positive note after oil prices retreated to levels seen before the war with Iran.However, the broader market remained under pressure from weakness in artificial intelligence stocks. The S&P 500 ended with its second weekly decline in the past 13 weeks, largely due to losses across the technology sector, particularly artificial intelligence companies and related technology stocks.
