Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

U.S. annual consumer inflation posts largest increase since 1981

Economy Jul 13, 2022 02:37PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
3/3 © Reuters. FILE PHOTO: Gas prices are displayed at a Sunoco gas station after the inflation rate hit a 40-year high in January, in Philadelphia, Pennsylvania, U.S. February 19, 2022. REUTERS/Hannah Beier 2/3
 
WFC
-0.69%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
WMT
-1.93%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
TGT
-2.24%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
NG
-2.27%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. annual consumer prices jumped 9.1% in June, the largest increase in more than four decades, leaving Americans to dig deeper to pay for gasoline, food, healthcare and rents, and the Federal Reserve most certain to hike interest rates by another 75 basis points at the end of the month.

The bigger-than-expected rise in the year-on-year 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, apparel and household furniture. The CPI increased by the most in nearly 17 years on a monthly basis.

The inflation data followed stronger-than-expected job growth in June and suggested that the U.S. central bank's aggressive monetary policy stance had made little progress thus far in cooling demand and bringing inflation down to its 2% target. With rents surging by the most in 36 years, inflation could become entrenched.

Though a global problem, stubbornly high inflation is a political risk for U.S. President Joe Biden and his Democratic Party heading into congressional elections in November.

"Despite the Fed's best intentions, the economy looks to be moving into a higher inflation regime," said Christopher Rupkey, chief economist at FWDBONDS in New York. "The Fed is even further behind the curve after today's sizzling report."

The consumer price index increased 1.3% last month, the biggest monthly gain since September 2005, after advancing 1.0% in May. A 7.5% surge in energy prices accounted for nearly half of the increase in the CPI. Gasoline prices jumped 11.2% after rebounding by 4.1% in May. Prices at the pump have since declined considerably from June's record highs.

Natural gas prices rose 8.2%, the most since October 2005. The cost of food consumed at home rose 1.0%, posting the sixth straight monthly increase of at least 1.0%.

In the 12 months through June, the CPI jumped 9.1%. That was the biggest gain since November 1981 and followed an 8.6% rise in May. Economists polled by Reuters had forecast the CPI would rise 1.1% and accelerating 8.8% year-on-year.

Consumer prices are surging, driven by snarled global supply chains and massive fiscal stimulus from governments early in the COVID-19 pandemic.

(Graphic: Monthly rise in consumer prices highest in 17 years: https://graphics.reuters.com/USA-ECONOMY/JOBS/gdvzylweepw/chart.png)

The ongoing war in Ukraine, which has caused a spike in global food and fuel prices, has worsened the situation.

President Biden sought to draw some comfort from the retreat in gasoline prices from June, when they averaged above $5 per gallon, according to data from motorist advocacy group AAA. They were averaging $4.631 per gallon on Wednesday, which could ease some of the pressure on consumers.

"Those savings are providing important breathing room for American families," Biden said in a statement. "And, other commodities like wheat have fallen sharply since this report."

Annual food prices are rising at their fastest pace since February 1981, with energy prices posting their largest jump in more than 42 years.

Financial markets overwhelmingly expect the Fed to raise its policy rate by 75 basis points at its July 26-27 meeting. A full-percentage-point increase has not been ruled out and attention now shifts to the University of Michigan's consumer inflation expectations survey on Friday.

The Bank of Canada surprised by hiking its policy rate by 100 basis points on Wednesday, a super-sized increase last seen in 1998.

The Fed has raised its overnight interest rate by 150 basis points since March.

U.S. stocks were mixed. The dollar fell against a basket of currencies. U.S. Treasury prices rose.

UNDERLYING INFLATION

The economy created 372,000 jobs in June, with a broader measure of unemployment hitting a record low.

(Graphic: U.S. inflation rate tops 9%: https://graphics.reuters.com/USA-ECONOMY/INFLATION/egvbkxmwkpq/chart.png)

There had been hope that a shift in spending from goods to services would help cool inflation. But the very tight labor market is boosting wages, adding to higher prices for services.

Underlying inflation pressures sizzled last month. Excluding the volatile food and energy components, the CPI gained 0.7% in June after climbing 0.6% in May. The so-called core CPI was lifted by the cost of rent, which shot up 0.8%, the largest monthly increase since April 1986.

Rents are one of the largest and stickiest inflation categories, which raises the risk of the Fed maintaining its aggressive rate hikes into the second-half of the year.

"There remain miles to go before getting back toward anything resembling price stability," said Sarah House, a senior economist at Wells Fargo (NYSE:WFC) in Charlotte, North Carolina.

New vehicle prices maintained their upward trend as did those for used cars and trucks. The cost of motor vehicle maintenance and repairs surged 2.0%, the most since September 1974. Healthcare costs rose 0.7%, with a record increase in the cost of dental services.

Apparel prices increased 0.8%, despite retailers like Walmart (NYSE:WMT) and Target (NYSE:TGT) reporting excess inventory that would require discounts. But prices for hotels, car rentals and airfares declined. Still, core goods prices rose a strong 0.8%, while services gained 0.7%.

The core CPI increased 5.9% in the 12 months through June. That followed a 6.0% rise in the 12 months through May and marked a third straight month of deceleration.

High inflation is eroding wage gains, which together with rising borrowing costs could crimp consumer spending, leaving economists to expect a mild recession at the turn of the year. Inflation-adjusted average weekly earning fell 1.0% in June.

U.S. annual consumer inflation posts largest increase since 1981
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Jeremy Johnson
Jeremy Johnson Jul 13, 2022 2:57PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Why show a picture of a gas station when it's not even factored into the CPI?
Art Carrano
Art Carrano Jul 13, 2022 2:33PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Yikes!
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email