June prices rose 9.1% year-on-year, the fastest pace since 1981, as rising gas prices, rising rents, and soaring groceries made everyday life in American homes more expensive. .. Price increases were widespread and faster than expected, causing problems with the Federal Reserve.
Inflation indexes, including food and gas, could slow in July data as pump prices have slowed in recent weeks. National average cost of 1 gallon Lead-free gas peaked Last month it was about $ 5. It was about $ 4.65 this week.
However, gas prices are volatile and can skyrocket again. The report contained unwelcome news that exceeded the headline number. The core inflation index, with food and fuel prices removed, gave a sense of the underlying inflationary trend and remained high, entering earlier than economists expected. The core index rose 5.9% annually until June, a slight slowdown from 6% in the previous report. Core indicators actually rose 0.7% from May to June, surpassing the previous month’s rise and bad news for central banks.
The world economy has been plagued by a series of unstoppable shocks since the beginning of the coronavirus pandemic. Factory closures and lack of transportation disrupted the supply chain, labor shortages reached capacity for airlines, made it difficult for hotels to rent rooms, and Russia’s invasion of Ukraine cut off oil and gas supplies. .. Economists have had a hard time predicting when and how inflation will subside for over a year.
At a recent panel in Sintra, Portugal, Fed Chair Jerome H. Powell said, “I now understand very little about inflation.”
The Fed, which is responsible for maintaining price stability and the strength of the labor market, is no longer waiting for its normality to recover. Central banks are concerned that inflation remains high and stubborn, which may allow consumers and businesses to get used to it.
If people start demanding higher wages in anticipation of rising prices (for example, negotiating a living cost adjustment of 6-7% instead of the usual 2-3%), the company will price the inflated labor costs. Customers by raising. It can perpetuate rapid inflation, making it much harder for the Fed to discontinue.
Given the threat, central banks are escalating attacks on inflation. The Federal Reserve first sought to slow consumer demand by raising interest rates from near zero to a quarter point, spending money on borrowing. In May, we raised interest rates by 0.5 points, and last month we raised them by three-quarters.
Many central bankers have made it clear that they want another three-quarters increase in July, hoping to raise interest rates to nearly 3.5% by the end of the year. They were able to achieve that by raising rates by 0.5 points in September and 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 can be even slower Stores like Target Try selling off your bloated inventory. Gas buddy Patrick de Khan said gas prices could continue to fall, especially if the escalation was lifted in Ukraine.
That said, the gas outlook is cloudy as the hurricane season can disrupt supply.
“It could be reversed — I don’t want to say that the coast is still clear,” Dehan said.
Geopolitics raises another possible wildcard: White House officials say a new round of European penalties aimed at curbing Russia’s oil flow by the end of the year will bring global energy prices Fearing that it could rise again, we are trying to offset that risk.
And other upward pressures on inflation continue. For example, rents make up the majority of households and are rising rapidly.
Goldman Sachs economists expect core CPI (a gauge that captures potential inflationary pressures) monthly readings to “remain strong towards the end of summer” and recover in early fall before slowing towards the end of the year. I am.
