December 1, 2022

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US consumer inflation has risen to the highest annual rate since 1981

US consumer inflation has risen to the highest annual rate since 1981

  • CPI jumps 1.3% in June
  • Year-on-year CPI rose 9.1%, the largest rise since 1981
  • Core CPI rose 0.7%; By 5.9% YoY

WASHINGTON, July 13 (Reuters) – U.S. consumer prices rose 9.1% in June, the largest annual increase in more than four decades as rising gasoline, food and rental costs bolstered the case for another 75 basis point rate hike. . by the Federal Reserve this month.

The larger-than-expected year-over-year increase in the Consumer Price Index reported by the Labor Department on Wednesday also reflected higher prices for health care, automobiles and clothing, as well as home furnishing. The CPI rose by the most in almost 17 years on a monthly basis.

The inflation data came on the heels of stronger-than-expected job growth in June, and indicated that the Fed’s tight monetary policy stance had made little progress so far in calming domestic demand and bringing inflation down to a 2% target.

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Although high inflation is a global problem, it is a political risk for US President Joe Biden and his Democratic Party on their way to the congressional elections in November.

“Despite the Fed’s best intentions, the economy appears to be heading toward a higher inflation regime,” said Christopher Robke, chief economist at FWDBONDS in New York. “The Fed is further off the curve after today’s strong report.”

The Consumer Price Index rose 1.3% last month, the largest monthly gain since September 2005, after rising 1.0% in May. The 7.5% increase in energy prices accounted for nearly half of the increase in the CPI. Gasoline prices jumped 11.2% after rebounding 4.1% in May.

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Natural gas prices rose 8.2%, the most since October 2005, while the cost of electricity rose 1.7%. Food prices rose 1.0%. The cost of food consumed at home rose 1.0%, marking the sixth consecutive monthly increase of at least 1.0%.

In the twelve months through June, the CPI jumped 9.1%. This was the biggest gain since November 1981 and followed an 8.6% rise in May. Economists polled by Reuters had expected the consumer price index to rise 1.1 percent and accelerate 8.8 percent on an annual basis. Consumer prices are rising, driven by crowded global supply chains and massive fiscal stimulus from governments early on in the COVID-19 pandemic.

The ongoing war in Ukraine, which caused global food and fuel prices to rise, aggravated the situation.

On Wednesday, the Bank of Canada announced a full percentage point increase in its policy rate, a sizeable increase last seen in 1998. Read more

Gasoline prices in the United States hit record levels in June, averaging above $5 a gallon, according to data from the AAA Motorists Advocacy Group. It has since fallen from last month’s peak and averaged $4,631 a gallon on Wednesday, which could ease some of the pressure on consumers.

US stocks opened lower. The dollar rose against a basket of currencies. US Treasury bond prices fell.

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The government reported last Friday that the economy created 372,000 jobs in June, with a broader measure of unemployment dropping to a record low. Read more

The tightness of the labor market was also underlined by the fact that there were approximately two jobs for every unemployed person at the end of May. Financial markets overwhelmingly expect the US central bank to raise interest rates by 75 basis points at its July 26-27 meeting. The Fed has raised its overnight interest rate by 150 basis points since March.

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

There was hope that a shift in spending from goods to services would help cool inflation. But a very narrow labor market boosts wages, and contributes to higher prices for services.

Underlying inflation pressures remained strong last month. Excluding the volatile food and energy components, the CPI rose 0.7% in June after rising 0.6% in May. The so-called base CPI was boosted by the cost of rent, which rose 0.8%, the largest monthly increase since April 1986.

New car prices maintained their upward trend as did those of used cars and trucks. The cost of car maintenance and repair rose 2.0%, the most since September 1974. Health care costs rose 0.7%, with a record increase in the cost of dental services. The price of clothing rose 0.8%, although retailers said they would have to offer discounts due to excess inventory.

Core CPI rose 5.9% in the 12 months to June. That followed a 6.0% rise in the 12 months through May. High inflation and rising borrowing costs are stoking fears of a recession by early next year.

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(Reporting by Lucia Mutikani) Editing by Chizu Nomiyama and Paul Simao

Our criteria: Thomson Reuters Trust Principles.