Inflation in the US Jumps 7.5 in in 40 Years
Inflation in the US has now become one of the biggest economic challenges facing the country. The latest data show broad increases in housing, food, and energy prices. The data also raises questions about the strength of the economy. Energy costs accounted for nearly half of the overall increase, and their rise is particularly troubling. Prices for gasoline, electricity, and other forms of fuel have increased by nearly forty percent in the past year.
CPI jumped 9.1% in the 12 months through June
June’s CPI showed a broad increase in the cost of food, energy, and shelter. The increase confirmed that inflation has become the nation’s most significant economic challenge. It also raised questions about the health of the economy. The energy index accounted for nearly half of the overall increase, up 7.5% from May. It also showed an annual increase of 41.6 percent.
A number of factors contributed to the increase in the CPI, mainly energy and food prices, although domestic issues also affected the index. Other major costs included shelter, medical care, motor insurance, and new and used cars. The cost of airline fares remained high, with an increase of 34.1 percent over the past year.
The Fed will need to act quickly to combat the inflation problem. Its goal is to keep inflation under 2% and increase interest rates if it sees a need to do so. Inflation is now well over the Fed’s target range. This month’s report is an additional headache for the Biden administration and congressional Democrats, who are under pressure from the midterm elections.
In June, the Consumer Price Index rose 1.3% versus 1% in May, making it the largest increase since November 1981. The most significant contributor to inflation was gasoline, up 61 percent versus a year ago, while food and shelter increased by 1.0%. The overall CPI is likely to increase by the Federal Reserve’s 0.7 percent target, which means interest rates are likely to rise in the coming months.
Inflation in the US rose 9.1% year-over-year in June, the highest level in 40 years. That’s above the 8.8% economists had expected. The jump is still much higher than the 3.2% predicted by Bloomberg. While the price increase is significant, the pace of increase is still slow.
The consumer price index increased by 1.3% in June and 9.1% over the last year, which is the highest level since November 1981. The rate of inflation is expected to remain high for quite a while yet. Further, the war in Ukraine is affecting global food, energy, and commodities, which may cause a spike in prices.
The higher inflation rate can be attributed to many factors, including geopolitical risks such as the Russia-Ukraine conflict. Meanwhile, the Fed has signaled a second 75 basis point rate hike later this month. However, despite the increased pressures in the economy, the futures market still implies a 50 percent chance of a rate hike.
Prices of goods and services jumped in May
Consumer prices rose for the second consecutive month, outpacing economists’ predictions. The price rise was mostly driven by higher food and energy costs, but also included higher costs for new and used cars and rent. While these factors were responsible for the overall increase, prices in some categories remained stable. For example, the cost of a new car rose 1% from April to May. Household furnishings and utility costs were also up 1%.
The increase in food and beverage prices was the biggest in a year, and the largest since May 1979. Most food items rose in price, including eggs, milk, bread, and flour. Pork and veal remained the cheapest across all categories, but chicken was an outlier.
Energy costs accounted for nearly half of the CPI’s gain. Natural gas and electricity increased by 8.2% and 1.7%, respectively. Food costs increased by 1.0%. And the overall CPI is up 6% over the past year. While the increase is still lower than the previous record, it remains higher than the five-year average.
The increase in consumer prices is a concern. While wages are still rising, the shift in spending from goods to services should help to keep inflation under control by year’s end. Meanwhile, prices are continuing to rise despite the continued shortage of semiconductors. In May, prices of pre-owned vehicles increased 16.1%, while new cars rose 12.6%.
Although the rise in food costs is still relatively modest, the effect of the ongoing war in Ukraine has already begun to have a profound impact on prices. In addition to fuel costs, food prices have been rising due to supply chain problems and fertilizer shortages. The Russian invasion has also disrupted grain shipments. Meanwhile, gas prices have increased sharply, but before the invasion began, these prices were rising anyway. Ultimately, these rises in goods and services may reverse as the war-driven effects fade. However, the rise in food and gas prices could make the rise in inflation a bit stickier and more difficult to stamp out.
The rise in food costs was also apparent in May. According to the Consumer Price Index (CPI), the cost of food rose 8.6% year over year and 1.3 percent month over month. Economists had been predicting a gradual decline in the inflation rate, but the rate of rise exceeded expectations and is now a record high.
Core CPI data also indicate strong inflationary pressures. The index rose 0.6% in August, up from a year ago, and it was well above the Fed’s 2% target. The increase in housing prices, which make up the bulk of the CPI, was a major contributor to underlying inflation. In addition to housing costs, higher prices for motor vehicles, education, and household goods also contributed to higher prices.
Meanwhile, the prices of clothing climbed 0.8% in July, with retailers forced to give discounts in response to excess inventory. Meanwhile, the prices of new cars jumped 1%.