US Consumer Price Index – Inflation Skyrockets to 9.1%, Exceeding Expectations Yet Again

US Consumer Price Index - Inflation Skyrockets to 9.1%, Exceeding Expectations Yet Again

On Wednesday, the Labor Department reported that the US Consumer Price Index jumped 9.1% in June. This is the highest increase since the end of 1981. Inflation rose 1.3% from a month earlier, the largest increase since 2005, due to mounting fuel, housing, and food prices.

In different surveys, economists had predicted a 1.1% gain from May and an 8.8% year-over-year rise. For the fourth month in a row, the headline annual total exceeded expectations.

The so-called core Consumer Price Index, which excludes the more volatile food and energy prices, increased by 0.7% from the previous month and 5.9% over the previous year.

While the dollar surged, the S&P 500 index opened lower, and shorter-term Treasury yields jumped.


Since President Joe Biden and congressional Democrats’ popularity has been dwindling ahead of the midterm elections, the recent inflation figures will add to their worries, and put the Federal Reserve on an aggressive policy track in order to rein in demand.

Consumer Price Index

 

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Let us take a look at how inflation impacted different sectors in the month of June. 

Energy & Food

Price hikes for everyday items in the home were once again out of control in June. The month saw an 11.2% increase in gas prices compared to May. With an increase of 3.5%, prices of energy services (including natural gas & electricity) also rose to their highest level since 2006.

U.S. President Joe Biden is traveling to the Middle East to meet with Saudi and other Gulf officials. He intends to discuss energy production in an effort to cut high gas prices. In June, the national average retail gas prices topped $5, however, that price has since fallen.

On the other hand, food prices rose by 1% and by 10.4% from a year before, marking the highest annual rise in food prices since 1981.

The cost of products increased by 2.1% from May. The growth in service charges was the biggest in over two decades, at 0.9%. Consumers are expected to shift their spending from goods to services as anxiety about COVID subsides. But goods prices still remain high for now.

Economic analysts feel that the cost of food and energy is on the decline. According to them, grocery prices are expected to ease further as raw material, transportation, and labor costs have all begun to fall.


Rents & Shelter

The biggest monthly rise since 1986 in rent of primary residence also occurred in June. It jumped by 0.8% from a month earlier. Owners’ equivalent rent has climbed by 0.7%, marking a 32-year high.

Despite the recent slowdown in home sales owing to rising mortgage rates, experts predict rental inflation to continue rising since price adjustments take time to flow into the Consumer Price Index.

There was a significant drop from May to June in the cost of hotel and airline tickets, as well as vehicle rental rates. The latest feedback from US airlines, however, indicates that demand for travel is still robust.

There was a 1.6% increase in the price of used cars compared to a month before, while new car prices grew by 0.7%.


Consumer earnings are being cannibalized by rising prices, despite the fact that nominal wages have risen. Inflation-adjusted hourly wages fell by 3.6% in June from a year earlier. This is the 15th consecutive loss and the highest since statistics collected in 2007. For the first time this year, inflation-adjusted consumer expenditures declined 0.4% in May.


Looming Threats

Many variables, including housing, are expected to keep prices high for a longer period of time. Pandemic-related lockdowns in China and Russia’s conflict with Ukraine are only two examples of geopolitical dangers that might affect the global economy.

Economists predict that as a result of persistent pressure on the core rate, driven by rising rents,  inflation won’t peak for some time, and will stay obstinately high much longer than expected despite the drop in gasoline prices in July and the reports of retail discounts.


The likelihood of a US recession, which some analysts predict will occur within the 12 months, rises in direct proportion to the Fed’s rate hikes. To be sure the labor market has held up well, approximately 400,000 new jobs were created last month.

Amid persistent inflation as well as still-robust job and wage growth, a second rate increase of 75 basis points by the Federal Reserve is expected later this month. Much before the data was made public, traders had already factored in the possibility of such an outcome. A full percentage point might now be on the cards, according to the experts.

We hope you found this article on the latest US Consumer Price Index data useful. For more insightful content, visit richtv.io. Also remember to follow us on Twitter, Instagram,  Facebook, or Linkedin and subscribe to our channel on Youtube. Thanks for reading.


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