WASHINGTON — US inflation likely reached a new 40-year high in June, driven up by a spike in gas costs, more expensive food and rent, and pricier cars and hotel rooms, according to AP.
A government report on Wednesday is expected to show that consumer prices soared 8.8 per cent in June compared with a year earlier, according to data provide FactSet. That would be an increase from 8.6 per cent in May and the biggest yearly rise since December 1981.
Inflation at that level would make it highly likely the Federal Reserve will implement another large interest rate increase at its next meeting in two weeks. Higher rates are intended to cool consumer and business spending and slow the economy and inflation.
Such large price increases would also highlight the brutal impact that inflation has had on many families’ finances, as the costs of many necessities has soared at a faster pace than incomes. Lower-income Americans and Black and Hispanic families have fared worse, as a greater percentage of their budgets are spent on items like gas and food.
So far in July, however, gas prices have fallen from the eye-watering $5 a gallon reached in mid-June to an average of $4.66 nationwide as of Tuesday. That is still far higher than a year ago, but the drop points to the potential for sharply lower inflation this month and possibly in August.
Still, rising prices have caused a steep decline in consumers’ confidence in the economy, dragged down President Joe Biden’s approval ratings and present major political risks for congressional Democrats this fall. Forty per cent of US adults said tackling inflation should be a top government priority this year in a June AP-NORC poll, up from just 14 per cent in December.
Americans sharply ramped up their spending as the pandemic waned a year ago, initially splurging on furniture, exercise equipment, and other home goods and in recent months switching more to travel, dining out, and going to movies and concerts. Surging demand, partly fueled by government stimulus checks, overwhelmed supply chains and sent prices soaring.
On a monthly basis, economists forecast that Wednesday’s report will show prices rose 1.1 per cent in June from May, according to FactSet. Some economists estimate that as much as half of that gain would reflect higher prices at the pump.
Excluding the volatile food and energy categories, prices likely rose 0.6 per cent in June for the third straight month and 5.7 per cent from a year earlier.
Monthly increases of that size would likely cement the case at the Federal Reserve for another large, 0.75 percentage point increase in its benchmark short-term interest rate, which is currently in a range of 1.5 per cent to 1.75 per cent. At its rate-setting meeting last month, Fed officials implemented a 0.75 percentage point hike, the largest in nearly three decades.
The persistence of inflation has unnerved Fed Chair Jerome Powell and other Fed officials, who are engaged in the fastest series of rate hikes since the late 1980s in an effort to bring it to heel.
Powell has emphasised that the central bank wants to see “compelling evidence” that inflation is slowing before dialing back its rate hikes. Such evidence would need to be a “series of declining monthly inflation readings,” he said at a press conference last month.
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