This month's inflation rate was the highest in the past 40 years as a consequence of rising petrol, food, and rent prices. The Federal Reserve's plans for a hefty rate rise this month have been confirmed by this development.
The Consumer Price Index, released by the Labor Department on Wednesday, shows prices rising by 9.1% on a year-over-year basis, up from 8.6% in the previous month and the fastest rate of inflation since November 1981. Inflation is expected to reach 8.8 percent, according to a study done by Bloomberg.
Price increases for consumers reached 1.3 percent in June, the largest monthly increase since 2005. To put this into perspective, consider how things have changed from May, when they grew by 1%.
In a research note, Pantheon Macroeconomics head economist Ian Shepherdson answered with a "Ouch" when questioned about the most recent price increase.
It was noted by him and other economists that, despite a similar prediction made in the spring that turned out to be erroneous owing to its prematureness, June was most likely the peak of inflation.
After two months of raising interest rates, the Federal Reserve intends to do so again this month in an effort to combat rising inflationary expectations. The findings of this research support the Fed's stated goals.
Investors, who were already pessimistic, were disappointed by the news. The Dow Jones Industrial Average dropped more than 300 points when the most current figures were made public. S&P 500 lost 37 points, or almost 1%, on the day. In addition, 10-year bond rates increased. They were hovering at 3.03 percent in the midst of the morning trading. Gasoline prices rose by 11.2% in June over the previous month and by 59.9% on an annual basis, continuing their role as the key inflation driver. On Tuesday, regular unleaded gasoline cost $4.65 a gallon, a decrease from the previous month's average price of $5 per gallon.
In May, food and home products prices rose 1%, compared to a 12.2% increase in the previous year. Increasing prices for fuel and food have been caused by a reduction in supply due to Russia's participation in the Ukraine crisis. This has resulted to higher prices for these commodities.
On a month-over-month basis, cereal prices rose by 2.5% in June, while year-over-year prices rose by 14.2% in June 2016. By year-over-year comparison, bread costs are up 10.8 percentage points from a year ago. In May, chicken prices rose by 1.5%, but they've risen by 17.3% over the previous year.
There were some encouraging signs. The price of bacon fell by 1.9 percent for the second month in a row. Beef and veal prices, on the other hand, have fallen by 2.3%. Commodity prices have fallen recently due to fears about the economy's slowdown and a decrease in consumer demand. Sam Bullard, a Wells Fargo economist, thinks that this has already led to reduced gas prices and the creation of circumstances that will lead to more moderate increases in food prices in the months to come.
Pooja Sriram, an economist at Barclays, believes that farmers' increased costs for fertilizer might lead to higher food prices all year round. As a result of the crisis in Ukraine, both fertilizer and natural gas have seen significant price increases. Fertilizer exports from Russia rank first in the world.
There was a 0.7% gain in June over the previous month in core prices, which exclude the volatile impacts of food and energy prices. As a consequence, annual growth slowed from 6% in May to 5.9% in June.
As a consequence of people returning to their own apartments after seeking sanctuary with family members during the outbreak, rents have increased by 0.8 percentage points per month and by 5.8 percentage points over the previous year.
There have been some nice developments that could entice visitors this summer. Despite the higher demand, airline and hotel expenses decreased by 1.8% and 2.8%, respectively, but remain higher by 34.1% and 10% from a year earlier.
Inflation is expected to decline during the following several months. Additionally, supply chain problems are starting to improve, wage increases may be slowing down, and retailers' overstocked inventories are pushing big price reductions for their customers.
Consumers have also begun moving their spending from things to services like dining out and vacations as the pandemic has begun to wind down. Pantheon Macroeconomics' Shepherdson predicted that this would be the final significant uptick.
The preceding is a summary of an article that originally appeared on The Daily Cable.