- The consumer price index rose 1.3% in June
- The year-on-year CPI rose by 9.1%, the largest increase since 1981
- The underlying CPI increases by 0.7%; has increased by 5.9% year-on-year
WASHINGTON, July 13 (Reuters) – US consumer prices rose 9.1% in June, the largest increase in more than four decades, pushing Americans to pay gasoline, food, health care and rents, and the Federal Reserve will most certainly raise interest rates by 75 basis points more by the end of the month.
The larger-than-expected rise in the year-on-year consumer price index reported Wednesday by the Department of Labor also reflected higher prices for a number of other goods and services, such as motor vehicles, clothing and home furniture. The CPI rose further in almost 17 years monthly.
Inflation data followed stronger-than-expected employment growth in June and suggested that the US central bank’s aggressive monetary policy stance had advanced little so far to cool demand and reduce inflation to its 2% target. With rents rising by a maximum of 36 years, inflation could consolidate.
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While it’s a global problem, stubbornly high inflation is a political risk for U.S. President Joe Biden and his Democratic Party heading into congressional elections in November.
“Despite the Fed’s best intentions, the economy seems to be moving toward a higher inflation regime,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “The Fed is even further behind today’s report.”
The consumer price index rose 1.3% last month, the biggest monthly gain since September 2005, after advancing 1.0% in May. A 7.5% increase in energy prices accounted for almost half of the CPI increase. Gasoline prices rose 11.2% after rising 4.1% in May. Pump prices have fallen sharply since their all-time highs in June.
The price of natural gas rose 8.2%, the highest since October 2005. The cost of food consumed at home rose 1.0%, with the sixth consecutive monthly increase of at least 1 , 0%.
In the 12 months to June, the CPI rose 9.1%. This was the largest gain since November 1981 and followed an 8.6% increase in May. Economists surveyed by Reuters had predicted that the CPI would rise by 1.1% and accelerate by 8.8% year-on-year.
Consumer prices are rising, driven by stuck global supply chains and the massive fiscal stimulus from governments in the early days of the COVID-19 pandemic.
The ongoing war in Ukraine, which has led to rising world food and fuel prices, has worsened the situation.
President Biden tried to comfort himself with the drop in gasoline prices from June, when they exceeded $ 5 per gallon on average, according to data from the AAA motorists’ advocacy group. On Wednesday they had an average of $ 4,631 per gallon, which could ease some of the pressure on consumers.
“These savings are offering significant leeway to American families,” Biden said in a statement. “And other commodities like wheat have fallen sharply since that report.”
Annual food prices have been rising at their fastest pace since February 1981, and energy prices have seen their biggest jump in more than 42 years.
Financial markets overwhelmingly expect the Fed to increase its policy rate by 75 basis points at its July 26-27 meeting. An increase in full percentage points has not been ruled out and attention is now shifting to the University of Michigan’s consumer inflation survey on Friday.
The Bank of Canada surprised this Wednesday by increasing its policy rate by 100 basis points, a huge increase that was last seen in 1998. read more
The Fed has raised its one-day interest rate by 150 basis points since March.
US stocks mixed. The dollar fell in front of a basket of currencies. US Treasury prices rose.
SUBJECT INFLATION
The economy created 372,000 jobs in June, with a broader measure of unemployment hitting an all-time low. Read more
There was hope that a change in spending on goods to services would help cool inflation. But the tight labor market is raising wages, raising service prices.
Underlying inflationary pressures rose last month. Excluding the volatile components of food and energy, the CPI rose 0.7% in June after rising 0.6% in May. The so-called basic CPI rose by the cost of rent, which soared 0.8%, the largest monthly increase since April 1986.
Rents are one of the biggest, tightest inflation categories, increasing the risk that the Fed will maintain its aggressive rate hikes during the second half of the year.
“There are miles to go before we go back to anything that resembles price stability,” said Sarah House, a senior economist at Wells Fargo in Charlotte, North Carolina.
Prices for new vehicles continued their upward trend, as did those for used cars and trucks. The cost of maintenance and repair of motor vehicles increased by 2.0%, the highest since September 1974. Healthcare costs increased by 0.7%, with a record increase in the cost of dental services.
Clothing prices rose 0.8%, although retailers such as Walmart (WMT.N) and Target (TGT.N) reported excess inventory that would require discounts. But hotel prices, car rentals and air fares went down. Still, commodity prices rose a sharp 0.8%, while services rose 0.7%.
The underlying CPI rose 5.9% in the 12 months to June. This followed a 6.0% increase in the 12 months to May and marked a third consecutive month of slowdown.
High inflation is eroding wage gains, which along with rising borrowing costs could reduce consumer spending, so economists expect a slight recession earlier this year. Inflation-adjusted average weekly earnings fell 1.0% in June.
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Report by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao
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