- The consumer price index jumped 1.3% in June
- Year-over-year CPI jumped 9.1%, the biggest increase since 1981
- Core CPI rose 0.7%; up 5.9% year-on-year
WASHINGTON, July 13 (Reuters) – Annual U.S. consumer prices jumped 9.1 percent in June, the biggest increase in more than four decades, prompting Americans to dig deeper to pay for gasoline, food, health care and rents, and the Federal Reserve is most certain to raise interest rates by another 75 basis points at the end of the month.
The larger-than-expected rise in the annual consumer price index reported by the Labor Department on Wednesday also reflected higher prices for a range of other goods and services, including motor vehicles, clothing and home furnishings. The consumer price index rose by the most in nearly 17 years on a monthly basis.
The inflation data followed stronger-than-expected jobs growth in June and suggested the U.S. central bank’s aggressive monetary policy stance has made little progress so far in cooling demand and reducing inflation to its 2% target. With rents rising at the highest level in 36 years, inflation may be taking hold.
Sign up now for FREE unlimited access to Reuters.com
I am registering
Although a global problem, persistently high inflation is a political risk for US President Joe Biden and his Democratic Party heading into November’s congressional elections.
“Despite the Fed’s best intentions, the economy appears to be moving toward a higher inflation regime,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “Fed is even further behind the curve after today’s loud report.”
The consumer price index rose 1.3 percent last month, the biggest monthly increase since September 2005, after rising 1.0 percent in May. The 7.5% rise in energy prices accounted for almost half of the CPI increase. Gasoline prices jumped 11.2 percent after recovering 4.1 percent in May. Prices at the pump have since fallen significantly from record highs in June.
Natural gas prices rose 8.2%, the most since October 2005. Spending on food eaten at home rose 1.0%, marking the sixth consecutive monthly increase of at least 1.0%.
In the 12 months to June, CPI jumped 9.1%. This was the biggest increase since November 1981 and followed an 8.6% rise in May. Economists polled by Reuters had forecast CPI rising 1.1 percent and accelerating 8.8 percent year-on-year.
Consumer prices are rising, driven by strained global supply chains and massive fiscal stimulus from governments at the start of the COVID-19 pandemic.
The ongoing war in Ukraine, which has caused a spike in global food and fuel prices, has worsened the situation.
President Biden tried to take some comfort from the retreat in gas prices since June, when they averaged more than $5 a gallon, according to data from the motorist advocacy group AAA. They averaged $4.631 a gallon on Wednesday, which could ease some of the pressure on consumers.
“These savings provide important breathing space for American families,” Biden said in a statement. “And other commodities such as wheat fell sharply after this report.”
Annual food prices rose at their fastest pace since February 1981, with energy prices posting their biggest jump in more than 42 years.
Financial markets overwhelmingly expect the Fed to raise interest rates by 75 basis points at its July 26-27 meeting. A full percentage point increase is not out of the question, and attention now turns to the University of Michigan’s survey of consumer inflation expectations on Friday.
The Bank of Canada surprised by raising its key interest rate by 100 basis points on Wednesday, a super-large increase last seen in 1998 read more
The Fed has raised its overnight interest rate by 150 basis points since March.
US stocks were mixed. The dollar fell against a basket of currencies. US government bond prices rose.
CORE INFLATION
The economy added 372,000 jobs in June, with the broader measure of unemployment hitting a record low. Read more
It was hoped that shifting spending from goods to services would help cool inflation. But a very tight labor market is pushing up wages, contributing to higher prices for services.
Core inflation pressures rose last month. Excluding volatile food and energy components, the CPI rose 0.7% in June after rising 0.6% in May. The so-called core CPI was lifted by rental costs, which jumped 0.8%, the biggest monthly increase since April 1986.
Rents are one of the biggest and stickiest inflation categories, raising the risk that the Federal Reserve will maintain its aggressive rate hikes in the second half of the year.
“It’s miles away before we get back to anything resembling price stability,” said Sarah House, senior economist at Wells Fargo in Charlotte, North Carolina.
New vehicle prices maintained their upward trend, as did used car and truck prices. Spending on motor vehicle maintenance and repair jumped 2.0%, the most since September 1974. Health care spending rose 0.7%, with a record increase in the cost of dental services.
Apparel prices rose 0.8 percent, although retailers such as Walmart ( WMT.N ) and Target ( TGT.N ) reported excess inventory that would require discounts. But prices for hotels, car rentals and plane tickets have fallen. Still, prices of basic goods rose strongly by 0.8%, while services rose by 0.7%.
Core CPI rose 5.9% in the 12 months to June. This followed growth of 6.0% in the 12 months to May and marked the third consecutive month of slowdown.
High inflation is undermining wage growth, which, along with rising borrowing costs, could dampen consumer spending, leaving economists to expect a mild recession early in the year. Inflation-adjusted average weekly earnings fell 1.0% in June.
Sign up now for FREE unlimited access to Reuters.com
I am registering
Reporting by Lucia Muticani; Editing by Chizu Nomiyama and Paul Simao
Our standards: The Thomson Reuters Trust Principles.
Add Comment