US consumer prices rose more than expected in June, reaching an annual rate of 9.1%, a 40-year high that consolidates expectations of a historically significant rise in Federal Reserve interest rates. of 0.75 percentage points this month.
The consumer price index released on Wednesday by the Bureau of Labor Statistics accelerated further in June, above economists’ estimates of an 8.8% increase. It marked the fastest year-on-year increase since November 1981.
Between May and June, prices rose 1.3% more, after a 1% increase in May.
Once volatile items such as food and energy were eliminated, “underlying” inflation rose 0.7%, compared with the 0.6% advance in May. This translated into an annual increase of 5.9 per cent, roughly in line with the rate of 6 per cent reported the previous month.
The data will spur the U.S. central bank’s efforts to restore price stability, which intensified sharply last month after officials abandoned previously established plans to offer a half-point rate hike and instead implement the first 0.75 percentage point increase since 1994.
Politicians have also expressed their intention to raise rates to a level – estimated at around 3.5 percent – that will begin to slow economic activity by the end of the year. They try to maintain an aggressive approach to tightening monetary policy until there is evidence that monthly inflation readings are slowing toward a pace more consistent with the Fed’s 2 percent target.
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The Biden administration, whose popularity has plummeted in a context of rising inflation, this week has tried to move ahead of the June high and minimized the acceleration, noting that the data covered a period prior to a sharp fall in prices for energy and other raw materials. .
Brent crude, the international oil benchmark that had risen to nearly $ 140 a barrel in early March after Russia’s invasion of Ukraine, fell below $ 100 a barrel this week. World food prices have also moderated from record highs.
On Tuesday afternoon, a fake version of the June report circulated online falsely claiming that prices had risen at an annual rate of 10.2 percent, forcing the Bureau of Labor Statistics to discredit publicly.
Should the Fed raise rates three-quarters of a percentage point higher at its July meeting, as expected, the target range of the federal funds rate will rise between 2.25 and 2.50 percent.
Alongside these actions, which include reducing its $ 9 billion balance sheet, the Fed has stepped up its rhetoric not only about its “unconditional” commitment to reducing inflation, but also about what it is willing to risk. in terms of economic recovery to do so.
While job demand has remained extremely strong, with 372,000 more jobs created just last month, economists fear the momentum will soon shrink as the U.S. economy moves toward a recession. sometime next year.
The Fed has already begun to recognize that unemployment will have to rise, and officials recently forecast that unemployment will rise from the current historically low level of 3.6 percent to just above 4 percent in end of 2024.
Many economists believe that a more accurate estimate is around 5%, which translates into significantly larger job losses.