U.S. consumer inflation rises to highest annual rate since 1981

• Consumer price index jumps 1.3% in June
• Year-on-year CPI soars 9.1%, largest gain since 1981
• Core CPI increases 0.7%; up 5.9% on YoY basis

REUTERS: U.S. consumer prices surged 9.1 percent in June, the largest annual increase in more than four decades amid stubbornly high costs for gasoline, food and rent, cementing the case for another 75-basis-point interest rate hike by the Federal Reserve this month.

The larger-than-expected increase in the year-on-year consumer price index reported by the Labour Department yesterday also reflected higher prices for healthcare, motor vehicles, apparel as well as household furniture. The CPI increased by the most in nearly 17 years on a monthly basis.

The inflation data followed on the heels of stronger-than-expected job growth in June and suggested that the Fed’s aggressive monetary policy stance had made little progress so far in cooling domestic demand and bringing inflation down to its 2 percent target.

Though a global problem, high inflation is a political risk for U.S. President Joe Biden and his Democratic Party heading into congressional elections in November.

“Despite the Fed’s best intentions, the economy looks to be moving into a higher inflation regime,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “The Fed is even further behind the curve after today’s sizzling report.”

The consumer price index increased 1.3 percent last month, the biggest monthly gain since September 2005, after advancing 1.0 percent in May. A 7.5 percent surge in energy prices accounted for nearly half of the increase in the CPI. Gasoline prices jumped 11.2 percent after rebounding by 4.1 percent in May.

Natural gas prices rose 8.2 percent, the most since October 2005, while the cost of electricity increased 1.7 percent. Food prices gained 1.0 percent. The cost of food consumed at home rose 1.0 percent, posting the sixth straight monthly increase of at least 1.0 percent.

In the 12 months through June, the CPI jumped 9.1 percent. That was the biggest gain since November 1981 and followed an 8.6 percent rise in May. Economists polled by Reuters had forecast the CPI would rise 1.1 percent and accelerating 8.8 percent year-on-year. Consumer prices are surging, driven by snarled global supply chains and massive fiscal stimulus from governments early in the COVID-19 pandemic.

The ongoing war in Ukraine, which has caused a spike in global food and fuel prices, has worsened the situation.
The Bank of Canada yesterday announced a full-percentage-point increase in its policy rate, a super-sized hike last seen in 1998.

U.S. gasoline prices hit record highs in June, averaging above US $ 5 per gallon, according to data from motorist advocacy group AAA. They have since declined from last month’s peak and were averaging US $ 4.631 per gallon yesterday, which could ease some of the pressure on consumers.

U.S. stocks opened lower. The dollar rose against a basket of currencies. U.S. Treasury prices fell.