Inflation jumped again in June on a persistent climb in gas, food and rent costs, notching another 40-year high and likely solidifying the Federal Reserve’s plans for another big rate hike this month.
Prices increased 9.1% from a year earlier, up from an annual rate of 8.6% the prior month and the largest gain since November 1981,the Labor Department’s Consumer Price Index showed Wednesday. Economists surveyed by Bloomberg had estimated inflation would rise to 8.8%.
On a monthly basis, consumer prices increased 1.3%, compared with a 1% rise in May.
The report bolsters the Federal Reserve’s plans to raise its key interest rate by a hefty three-quarters of a percentage point for a second straight month as part of an aggressive campaign to curtail inflation.
What is causing inflation?
June’s surge again was led by gasoline prices, which increased 11.2% and 59.9% annually. The good news is unleaded regular averaged $4.65 Tuesday, down from $5 a month ago.
Grocery prices rose 1% and 12.2% over the past 12 months. Both gas and food costs have been elevated largely because Russia’s war in Ukraine has disrupted global supplies of oil, wheat, corn and other commodities.
Last month, cereal prices rose 2.5% and were up 14.2% from a year ago. Bread was up 1.6% from the prior month and climbed 10.8% annually. Chicken costs increased 1.5% from May and 17.3% yearly.
There were some encouraging signs. Bacon prices fell 1.9%, its second straight large monthly decline. And beef and veal prices decreased by 2.3%.
Will food prices go down?
Commodity prices have tumbled recently amid recession fears and ebbing consumer demand. That already has pushed down gas prices and set the stage for more moderate food price increases within months, says Wells Fargo economist Sam Bullard.
Barclays economist Pooja Sriram, however, believes higher fertilizer costs for farmers could keep grocery prices fairly high throughout the year. Russia is the leading exporter of fertilizer and the Ukraine war has driven up the cost of that commodity as well as its chief ingredient, natural gas.
Core prices, which exclude volatile food and energy items, increased 0.7% in June following a 0.6% rise the prior month, That nudged down the annual rise to 5.9% from 6% in May.
What is rent inflation?
Rent climbed 0.8% and 5.8% over the past year as people who hunkere down with family members during the pandemic move into their own apartments.
There were some positive developments for summer travelers. Airline fares fell 1.8% while hotel rates declined 2.8% but they’re still up 34.1% and 10% from a year earlier, respectively.
There are signs inflation is poised to ease this year. Besides falling commodity prices, supply chain troubles are abating, wage increases may be moderating and retailers’ bloated inventories are triggering big discounts for shoppers.
Also, consumer purchases have started shifting from goods to services, such as dining out and traveling, now that the pandemic is broadly easing.