The U.S. annual inflation rate climbed to 9.1 percent in June, reaching its highest level since November 1981 and topping the market estimate of 8.8 percent and May’s annual rate of 8.6 percent.
According to the Bureau of Labor Statistics (BLS), the consumer price index (CPI) rose by 1.3 percent month-over-month. The monthly inflation also was higher than economists’ expectations of 1.1 percent.
While the core inflation rate, which removes the volatile food and energy sectors, eased to 5.9 percent, that was higher than the forecast of 5.7 percent. On a monthly basis, core inflation rose at a higher-than-expected pace of 0.7 percent.
Food prices soared by 10.4 percent, while the energy index advanced by 41.6 percent.
Nearly every food item, except uncooked beef steak, was more expensive last month. Pork surged by 9 percent, chicken soared by 18.6 percent, and ham increased by 9.6 percent. Eggs spiked by 33.1 percent, milk rose by 16.4 percent, fruits and vegetables jumped by 8.1 percent, and coffee swelled by 15.8 percent.
On the energy front, fuel oil increased by 98.5 percent. Gasoline surged by 59.9 percent, electricity costs picked up by 13.7 percent, and propane and kerosene jumped by 26.1 percent.
New vehicles surged by 11.4 percent, used cars and trucks jumped by 7.1 percent, apparel increased by 5.2 percent, and shelter climbed by 5.6 percent.
Shelter costs, which make up about one-third of the CPI, increased by 0.6 percent in June from May. This was mainly driven by a 0.8 percent rise in rent of primary residence, the greatest rent increase since 1986.
“Today’s shockingly high consumer price inflation number does not bode well for our country’s economic outlook,” Desmond Lachman, economist and senior fellow at the American Enterprise Institute, told The Epoch Times in an email.
It makes it likely that the Fed will keep raising interest rates and decreasing its “bloated balance sheet” aggressively, he said.
“The Fed will likely do so despite the growing signs of economic and financial market weakness both at home and abroad,” Lachman said. “That has to raise the risk of a hard economic landing before yearend and further turmoil in the equity and bond markets.”
The S&P 500 ended 0.4 percent lower, its fourth consecutive drop, after tumbling as much as 1.6 percent earlier. The Dow Jones Industrial Average fell 0.7 percent, while the Nasdaq Composite ended down 0.2 percent, erasing nearly all of an early 2.1 percent loss.
The U.S. Dollar Index (DXY), which measures the greenback against a basket of currencies, spiked with the news before ending the day lower by 0.13 percent to 108.02. The index has been on a tear in 2022, rallying about 13 percent year-to-date.
A fake CPI report circulated online on July 12 and attempted to emulate the formatting of the May inflation data, using different dates and figures. It claimed that the annual inflation rate was 10.2 percent in June. Despite being a forgery, it caught the attention of investors, sending stocks slightly lower in the afternoon session on Wall Street.
The White House braced the American people on July 12 for an elevated headline reading, noting in a memo that the June CPI report was out of date since it didn’t contain the dramatic decline in food and energy prices. U.S. officials are ostensibly looking ahead to the July inflation numbers to show that their efforts are succeeding.
Over the past month, crude oil and gasoline prices have fallen by notable levels amid growing recession fears and weaker demand outlooks.
West Texas Intermediate (WTI) crude has slumped by about 17 percent to below $100 per barrel on the New York Mercantile Exchange since the middle of July. The national average for a gallon of gasoline has tumbled by roughly 7 percent to about $4.65, according to AAA.
Agricultural commodities have also plummeted, with corn, wheat, and soybeans down by approximately 20 percent in the past month.
“The softening food, energy, and commodity prices, the improved supply chains, the easing shipping costs, and lower purchasing manager indices hint that U.S. inflation may have hit a peak last month, or will hit one soon,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, wrote in a research note.
Even if inflation has peaked, market experts believe prices for many goods and services in the marketplace will remain elevated, such as rent and airline fares. Core CPI could moderate, too, because of weaker used car prices.
The headline inflation reading prompted the interest-rate futures market to revise its expectations that the Federal Reserve will raise rates by 100 basis points at this month’s Federal Open Market Committee (FOMC) policy meeting. Most of the market had anticipated a three-quarter-point increase at the upcoming rate-setting committee meeting, with small odds of a full point hike, according to the CME FedWatch Tool.
Price stability has become the central bank’s primary objective, even if it triggers a recession and extends the selloff in the financial markets. Fed Chair Jerome Powell has stated that it’s possible to navigate a soft landing, but noted that it isn’t a guarantee.
Bryce Doty, senior vice president and senior portfolio manager at Sit Investment Associates, says the Fed’s actions will exacerbate problems in the economy.
“The Fed’s clear mistake of destroying demand by aggressively raising rates instead of supporting businesses desperately in need of workers will further extend shortages,” he wrote in a July 12 research note. “Just think of the incredible growth we would have if another 2 to 4 million workers re-entered the workforce. Supply shortages would dry up and inflation pressures would dissipate. Instead, the Fed’s actions will slow growth and inflation will persist longer than it should.”
However, Deutsche Bank analysts believe that the U.S. central bank needs to maintain its hawkish attitude as inflation continues to show that it’s “a demand-driven phenomenon.” In the past couple of months, consumer demand has eased. Personal spending rose by just 0.2 percent in May, according to the Bureau of Economic Analysis. Retail sales unexpectedly fell by 0.3 percent in May, the Census Bureau reported.
At the same time, with near-term recession fears growing, the financial institution expects the peak fed funds rate will be 4.1 percent, but economic downturn concerns “could well short-circuit the Fed’s hiking cycle before it reaches our current terminal rate expectations.”
Following the June FOMC meeting, the Fed updated its dot-plot from March, projecting that the benchmark rate would hit 3.4 percent this year, 3.8 percent in 2023, and drop back to 3.4 percent in 2024 (pdf).
“My expectation is that inflation will soon peak,” Lachman said. “It will do so as a result of the U.S. and world economy moving into a recession, as well as a result of the slump presently underway in international commodity prices in general and oil prices in particular.”
Next on the inflation front, the BLS will release the June producer price index on July 14. Economists forecast that it will come in at 10.7 percent year-over-year, down from 10.8 percent in May.
Emel Akan contributed to this report.