The Consumer Price Index for June also showed that the overall prices consumers pay for a variety of goods and services rose 1.3% from May to June. Much of June’s increase was driven by rising gasoline prices, which have risen nearly 60% over the year. Americans faced high gas prices last month, with the national average exceeding $5 a gallon across the country. Electricity and natural gas prices also rose, by 13.7% and 38.4%, respectively, for the twelve months ending in June. Overall, energy prices rose by 41.6% year-on-year. Increases, however, were felt in all categories. Home food prices rose 12.2% year-on-year, with eggs up 33.1%, butter up 21.3%, milk up 16.4%, chicken up 18.6% and coffee by 15.8%. Housing costs increased by 5.6%.
Tackling inflation is ‘top priority’
President Joe Biden said Wednesday that June’s CPI inflation reading was “unacceptably high” but noted that it is “also out of date” as gas prices have fallen over the past 30 days. Gasoline and crude oil prices are now below $100 a barrel, down from their highs in June. “Energy alone accounted for almost half of the monthly increase in inflation,” Biden said. “Today’s data does not reflect the full impact of the nearly 30 days of declines in natural gas prices, which have reduced the price at the pump by about 40 cents since mid-June. These savings provide significant breathing room for American families. And other commodities like wheat have fallen sharply after this exposure.’ Biden also reiterated that tackling inflation is his “highest priority.” The typical American household now needs to spend $493 more a month to buy the same goods and services it did this time last year, said Mark Zandi, chief economist at Moody’s Analytics. And, as prices continue to rise, so do wage gains. Real average hourly earnings — which represent wage growth adjusted for inflation — fell 1 percent from May to June and fell 3.6 percent from June 2021, according to separate BLS data released Wednesday. “Inflation has pretty much eroded most of the gains,” said Kathy Jones, managing director and chief fixed income strategist at Charles Schwab. “People’s purchasing power is falling.”
How this might affect rate hikes
Stripping out food and energy costs, which tend to account for transitory fluctuations, core CPI prices rose 0.7% from May to June and 5.9% for the twelve months to June. The Federal Reserve pays close attention to these key data when assessing future inflation trends, and the latest numbers likely give the central bank the green light to continue its aggressive series of rate hikes to cool the economy and reduce higher prices. The Fed is widely expected to raise its key interest rate by at least 75 basis points at its next monetary policy meeting on July 26-27. While it is too early to say whether inflation has peaked (especially given the broader volatility in the global economy), core inflation appears to have leveled off and expectations are that it will continue to decline compared to last year, he said. Cailin Birch, global economist at the Economist Intelligence Unit. “What everyone is worried about is today’s inflation data or what happened yesterday [the Fed is] they have to work with retrospective information to make forward-looking decisions,” he said. “I think they will decide to focus on keeping inflation expectations steady, reassuring the market. And that means higher interest rate hikes, but it brings more recession risks going forward.” CNN’s Allie Malloy contributed to this report.
