Inflation accelerated more than expected to a new four-decade high in June as the price of daily necessities remains painfully high, exacerbating an economic squeeze for millions of Americans and deepening a political crisis for President Joe Biden. The Labor Department said Wednesday that the consumer price index, a broad measure of the price of everyday goods including gasoline, groceries and rent, rose 9.1 percent in June from a year earlier. Prices jumped 1.3% in the month since May. Those figures were both well above Refinitiv economists’ forecast of 8.8% and a 1% monthly gain. It marks the faster rate of inflation since December 1981. So-called core prices, which exclude more volatile food and energy measures, rose 5.9 percent from a year earlier. Core prices also rose 0.7% month-on-month – higher than in April and May – suggesting underlying inflationary pressures remain strong and widespread. BANK OF AMERICA ANALYSTS NEED SEVERE RECESSION TO COOL INFLATION Price increases were wide-ranging, suggesting inflation may not be near its peak: Energy prices rose 7.5% in June from the previous month and were up 41.6% from a year ago. Gasoline, on average, costs 59.9% more than a year ago and 11.2% more than in May. The food index, meanwhile, rose 1 percent in June as consumers paid more for items such as grains, chicken, milk and fresh vegetables. In another worrying sign, housing costs – which account for about a third of CPI – accelerated again in June, rising 0.6%, matching May’s 18-year high. On a year-over-year basis, housing costs have risen 5.6%, the fastest since February 1991. Rent costs also rose in June, jumping 0.8 percent year-over-year, the biggest monthly increase since April 1986. Rising rents are a worrisome development because higher housing costs weigh more directly and more heavily on homeowners’ budgets. households. Another data point measuring how much homeowners would have paid in equivalent rent if they hadn’t bought their home also rose 0.7 percent in June from the previous month. AMERICANS’ INFLATION EXPECTATIONS TAKE TO NEW 11-YEAR HIGH IN JUNE, NEW YORK FED SAYS People shop for frozen food at a store in Rosemead, California on June 28, 2022. ((Photo by Frederic J. Brown/AFP via Getty Images) / Getty Images) “The CPI delivered another shock, and as painful as June’s higher number is, just as bad are the widening sources of inflation,” said Robert Frick, corporate economist at Navy Federal Credit Union. “While the rise in the CPI is driven by energy and food prices, which are largely global problems, prices continue to rise for domestic goods and services, from shelters to cars and clothing.” Stocks fell after the report, while government bond yields jumped. Ticker Security Last Change %I:DJI DOW JONES AVERAGES 30724.06 -257.27 -0.83%SP500 S&P 500 3799.43 -19.37 -0.51%I:COMP NASDAQ COMPOSITE INDEX 55 -904% Runaway inflation has created severe financial pressures on most US households, forcing them to pay more for daily necessities such as food, gas and rent. The burden falls disproportionately on low-income Americans, whose already inflated wages are heavily affected by price fluctuations. Although American workers have seen strong wage gains in recent months, inflation has largely eroded them: Real average hourly earnings fell 1% in June compared with the previous month, when they matched higher consumer prices, according to with the Ministry of Labour. On a year-over-year basis, real earnings fell 3.6% in June. Rampant inflation and the rapid erosion of Americans’ purchasing power has become a major political liability for Biden ahead of November’s midterm elections, in which Democrats are expected to lose their already slim majorities. Polls show that Americans see inflation as the biggest problem facing the country — and that many households blame Biden for rising prices.
The president blamed higher prices on greedy companies, supply chain bottlenecks and other disruptions to the economy caused by the pandemic, as well as Russia’s war in Ukraine. Most economists now agree that unprecedented levels of government stimulus and a stronger-than-expected recovery from the pandemic have also played at least some role in exacerbating the price spike. In a statement after the report was released, Biden acknowledged that inflation is “unacceptably high” and called tackling it “his highest priority.” However, he suggested the data is “outdated”, arguing that record gas prices are to blame for the poor CPI reading – and noted that prices at the pump have since fallen. “While today’s inflation reading is unacceptably high, it is also out of date,” Biden said. “Today’s data does not reflect the full impact of nearly 30 days of gas price cuts, which have reduced the price at the pump by about 40 cents since mid-June. These savings provide significant breathing room for American families.” The Marriner S. Eccles Federal Reserve Building in Washington, DC, US, on Wednesday, July 6, 2022. (Photo: Al Drago/Bloomberg via Getty Images / Getty Images) The worse-than-expected report will also have major implications for the U.S. Federal Reserve, likely underpinning a series of aggressive rate hikes as central bank officials try to tame inflation. Policymakers already raised the benchmark interest rate by 75 basis points last month for the first time since 1994 and confirmed that a similarly sized increase is on the table in July. With inflation running even hotter than economists expected in June, Wall Street is now raising the odds for a big 100 basis point hike in July. About 38% of traders are now pricing in the odds of a 100 basis point hike later this month, according to CME Group’s FedWatch tool, which tracks trades. GET THE FOX BUSINESS ON THE GO BY CLICKING HERE But the Fed is in a precarious position as it walks the line between reducing consumer demand and bringing inflation closer to its 2% target without inadvertently dragging the economy into recession. Hike rates tend to create higher interest rates on consumer and business loans, which slows the economy by forcing employers to cut spending. “Inflation continues to widen with core price increases, suggesting that strong and sustained policy action will be required from the Federal Reserve that risks tipping the economy into recession early next year,” said Joe Brusuelas, chief economist of RSM. “We estimate there is a 45% chance of a recession in the next twelve months.”