Inflation remained high in June: CPI report live updates

Prices in June rose 9.1 percent from a year earlier, the fastest pace since 1981, as rising gas prices, rising rents and inflated grocery bills pushed up the cost of everyday life for American families. The recovery in prices was broad and faster than expected, which caused the Federal Reserve to dictate problems.

Index inflation, including food and gas, may slow in July data because prices at the pump have moderated in recent weeks. The national average cost of a gallon of unleaded gas peaked at about $5 last month. This week, it was about $4.65.

But gas prices are volatile and could rise again. The report contained unwelcome news beyond the headline. The core inflation index which strips out food and fuel prices – giving a sense of the underlying inflation trends – remains high and came in faster than economists had expected. The core index rose 5.9 percent in the year to June, barely slowing from 6 percent in the previous report. The underlying measure actually rose 0.7 percent from May to June, more than the previous monthly increase and bad news for central bankers.

The global economy has been hit by a series of non-stop shocks since the coronavirus pandemic began. Factory closures and shipping shortages disrupted supply chains, a shortage of workers made it difficult for airlines to fly to capacity and hotels to rent rooms, and the Russian invasion of Ukraine disrupted oil and gas supplies. Economists have spent more than a year struggling to predict how and when inflation will stabilize again.

Jerome H. said: “We now have a better understanding of how little we understand inflation,” Powell, Fed Chairman, said at a recent session in Sintra, Portugal.

The Federal Reserve, tasked with maintaining price stability and steering the economy toward full employment, is no longer waiting for normalcy to return. Central bankers worry that with persistently high inflation and stubbornness, consumers and businesses can get used to it.

If people start demanding higher wages in anticipation of higher prices — negotiating cost-of-living adjustments of 6 or 7 percent, for example, instead of the typical 2 to 3 percent — companies could try to pass inflated labor costs to the side of customers by raising the prices. This could perpetuate rapid inflation, making eliminating the Federal Reserve even more difficult.

Given the threat, the central bank escalated its attack on inflation. The Fed raised interest rates for the first time from nearly zero in March, by a quarter point, in an effort to raise expensive money to borrow and slow consumer demand. In May, it raised interest rates by half a point, and last month it raised them by 0.75 percentage points.

Many central bankers have been clear that they want another 0.75 point increase in July, and that they hope to raise interest rates to nearly 3.5 percent by the end of the year. They can achieve this by raising interest rates by half a point in September and by a quarter point in both November and December.

The question is whether the data will allow the Fed to slow down.

There are some signs of hope. Retail prices could slow further as stores like Target try to sell off bloated stocks. GasBuddy’s Patrick de Haan said gas prices may continue to fall, especially if there is any de-escalation in Ukraine.

However, the gas forecast is clouded by the possibility that hurricane season could upend the show.

“It can be reversed – I don’t want to say the coast is clear yet,” Mr. de Haan said.

Geopolitics is another potential wild card: White House officials have expressed concern that a new round of European sanctions aimed at curbing the flow of Russian oil by the end of the year could send global energy prices up again, and they are trying to offset that risk.

Other upward pressures on inflation persist. Rents make up a large part of family budgets and are increasing rapidly, for example.

Economists at Goldman Sachs expect monthly readings of the core CPI – the measure that detects core inflation pressure – to “remain strong in late summer” and recover in the early fall before slowing towards the end of the year.

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