Sunday, May 28

US inflation rose 9.1% in June

The Consumer Price index, which measures changes in the cost of a basket of goods, jumped 1.3% in June compared to the 1% increase in May — a sign that inflation kept burning hot last month.

Compared to one year ago, the index in June hit 9.1%, rising from the 8.6% year-on-year increase seen a month prior — staying at the fastest pace in 40 years.

Wall Street analysts were expecting a month-on-month increase of 1.1% and an annual increase of 8.8%.

The June increase was heavily influenced by higher food and gas prices. The increase in gas prices, which reached an average of more than $5 a gallon in mid-June, added at least 0.5 percentage points to June’s monthly inflation reading, according to Bloomberg.

Geopolitical crises like the war in Ukraine continued to push up food and gas prices, according to Mark Hamrick, senior economic analyst with “It’s fair to say there may have been overly aggressive hopes that the war in Ukraine would be resolved quickly and in Ukraine’s favor,” he said, “and then there’s the question mark of Covid and the appearance of new lockdowns emerging. That is making the supply chain issue unresolved.”

Over the past month, prices at the pump have actually fallen from the $5 average to about $4.65, according to AAA — raising hopes that inflation may have peaked in June.

But the price declines may be coming for the wrong reasons — that is, because markets now fear a global recession, which would hurt demand. Hamrick said one in two economists surveyed by Bankrate now expect a recession — compared with one in three just a few months ago.

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“The concern is about the feared weakness of the economy, including globally,” Hamrick said.

The Federal Reserve wants to make sure inflation does not go any higher. It has already hinted at the possibility of another 0.75% hike of the key interest rate at its next meeting later this month in order to further dampen inflation. Higher borrowing costs tend to lead to lower demand, which economists believe can help control price growth.

Josh Bivens, director of research at the Economic Policy Institute, a progressive think tank, said inflation is hitting low-income families hardest because so much of their household spending goes to essentials like food, gas, and housing expenses.

But a slowing economy — meaning higher unemployment — will hurt them more, he said.

“The wages of low-wage workers are far more damaged by rising unemployment than other workers,” Bivens said in an email.

He said that, so far, wage growth for low-wage workers has been strong enough to stay ahead of inflation over the past year. But a continued aggressive stance from the Fed could make things worse.

“So anything that harms the labor market without doing much to get at the main drivers of inflation will harm them,” he said. “And, since faster interest rate hikes won’t do much to get at energy and food inflation, I worry more about the overreaction to inflation than inflation itself.”

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