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Market Insights

Inflation exceeds predictions, hitting 9.1% in June

Key takeaways:

  • The Consumer Price Index rose 9.1% on an annualized basis in June, up from 8.6% in May
  • Gas, shelter and food continue to be the main categories pushing the index higher
  • Core inflation, which excludes food and energy, also popped by 0.7% in June, and 5.9% year-over year

The Bureau of Labor Statistics published its Consumer Price Index (CPI) data for June, ahead of the Fed’s meeting scheduled for the last week of July. The report revealed pervasive price increases, with the largest contributions coming from gas, food and shelter, all of which are key categories associated with Americans’ non-discretionary spending. Overall, the index posted a 1.3% increase in June from the previous month, which follows a 1.0% pop in May. The current annual rate of 9.1% is the highest in over 40 years.

Several categories hit multi-decade highs. Gasoline continues to be a primary driver of inflation. It spiked 11.2% in June (9.9% before seasonal adjustment), pushing its 12-month increase to an eye-popping 59.9%. Other segments of the energy index also trended higher. Natural gas prices were up 8.2% in June, reflecting a 38.4% increase for the trailing year. Both measurement periods notched the biggest increases since 2005. Electricity’s 13.7% 12-month increase was the largest since 2006.

The cost of food at home was up 1.0% in June, continuing this year’s repeated pattern of increases exceeding 1.0%. For the preceding year, the category was up 12.2%, the largest annual increase since 1979. All six grocery store, food group index categories saw price increases. Five out of the six rose by more than 10%.

The cost of shelter moved up by 0.6% for the month, bringing its annual increase to 5.6%. Persistent and pervasive inflation has been caused by several factors in the global economy. The U.S. unemployment rate is close to a 50-year low, and this tight labor market has spurred wage growth. The Russia-Ukraine war has adversely impacted the supply of oil and other commodities, pushing prices higher.

Ongoing supply-chain snarls have created a shortage of goods and materials. The situation has been exacerbated by China’s zero-COVID policy, wherein numerous cities have been under full or partial lockdowns, leaving factories shuttered. This has caused routine shipments delays from Chinese ports. Supply constraints, be it labor or materials, have driven prices ever higher.

Amid the uncertainty coming from the intersection of a pandemic, geopolitical instability and economic headwinds, there is some evidence that Fed policy is beginning to have its intended effect. The series of interest rate hikes that began in March pushed mortgage rates higher, and Fed officials note there are signs the recently red-hot housing market is starting to cool. Similarly, airfares had been on a tear this year but dropped by 1.8% in June.

The Federal Reserve is committed to making policy decisions that will help to bring inflation down to a long-term target of 2%. To that end, at its June meeting, it raised rates by 75 basis points, the central bank’s largest hike since 1994. Given this month’s inflation spike, market observers will be anxiously awaiting the upcoming Federal Open Market Committee meeting at month’s end.



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