U.S. Inflation Quickens to 9.1%, Amping Up Pressure on Fed

U.S. inflation rose faster than predicted in June. This underscores the persistent pressures on prices that will force the Federal Reserve to continue its policy of raising interest rates later in the month.

Labor Department data Wednesday showed that the Consumer Price Index rose 9.1% over a year ago, the highest gain since the beginning of 1981. Inflation, which is closely followed, increased 1.3% from one month ago, reflecting rising fuel, shelter, and food prices.

According to the Bloomberg survey medians, Economists project a 1.1% growth from May and an 8.8% increase year-over-year.

Core CPI (which excludes volatile foods and energy) increased 0.7% over the previous month, and rose 5.9% year-over-year, exceeding forecasts.

After the report, Treasury yields and dollar rose while stock futures in the US fell.

Inflation figures that are hot confirm the fact that prices continue to drive down confidence and purchasing power. Fed officials will be continuing to push for a tighter policy to curb demand. This puts additional pressure on President Joe Biden as well the congressional Democrats, whose support has dropped ahead of midterm election.

Many economists believe this will mark the end of the current cycle’s inflationary peak. However, there are many factors that could keep prices high for longer. For example, housing and geopolitical risks. Geopolitical risks including Covid lockdowns in China and Russia’s war in Ukraine also pose risks to supply chains and the inflation outlook.

Fed policymakers have signalled a 75-basis-point increase in interest rates for this month, amid continued inflation and still strong wage and job growth. Traders had priced in the possibility of a 3-quarter percentile-point increase for July even before data was released.

The prices for essential household items continued to rise in June. The price of gas rose 11.2% to June, compared with a month before. Energy services prices, including electricity and natural gas, rose 3.5% in June, their highest level since 2006. Prices for food rose 1% and 10% respectively from last year, marking the highest increase since 1981.

PepsiCo Inc.’s early earnings reports show that some businesses are still able to withstand recent commodity price increases. Mountain Dew and Fritos maker PepsiCo Inc. were able to average 12% higher prices for customers in the second quarter. Despite this, volumes are still strong.

This is the biggest monthly rise since 1986, and it saw a 0.8% increase in primary residence rent. Shelter costs overall—which are the biggest services component and make up a third of the overall CPI index—climbed 0.6%, matching the prior month.

Although home sales are down in recent months because of higher mortgage rates economists anticipate rental inflation to increase as price fluctuations feed into CPI.

—With assistance from Chris Middleton.

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