Inflation in the U.S. rose to 9.1 percent in June, the highest since 1981 and a greater increase than economists predicted as President Joe Biden claims the issue is subsiding.
It’s the biggest 12-month increase in nearly four decades, and up from an 8.6 percent jump in May. On a monthly basis, prices rose 1.3 percent from May to June, another substantial increase, after prices had jumped 1 percent from April to May.
The ongoing price increases underscore the brutal impact that inflation has inflicted on many families, with the costs of necessities, in particular, rising much faster than average incomes, with Moody’s Analytics senior economist Ryan Sweet estimating that the average U.S. household spending budget went up by $493 last month.
The relentless spike in inflation has caused a steep drop in consumers’ confidence in the economy, sent President Joe Biden’s approval ratings tumbling and posed a major political threat to Democrats in the November congressional elections.
Wall Street has also taken another tumble following the news with the the Dow Jones falling 194.31 points, or 0.63 percent, as of Wednesday morning. The S&P 500 also took a fall of 13.28 points, or 0.35 percent, but the Nasdaq Composite saw a tiny rebound, jumping 13.88 point, or 0.12 percent, on Wednesday morning.
On Wednesday, Biden urged American’s to stay calm over the new report and said his administration was committed to tackling the issue while touting that gas prices have fallen a bit and that the nation is on the right.
‘While today’s headline inflation reading is unacceptably high, it is also out-of-date,’ Biden said, referencing that prices at the pump have fallen by 40 cents since mid-June. ‘Those savings are providing important breathing room for American families.
‘And, other commodities like wheat have fallen sharply since this report,’ the president claimed.
But Bank of America analysts are predicting that the Federal Reserve will move even more aggressively to tame inflation, to the point where they would push the U.S. into a recession too cool off the economy, Fox Business reported.
‘Spikes can reverse quickly, but underlying inflation tends to move in a gradual lagged fashion with respect to the economy,’ the analysts wrote. ‘It is going to take time to cool off the labor market and even more time to lower labor cost-driven inflation.’
Nearly half of traders now expect the Fed to raise interest rates by a full point, which would be the highest bump in 40 years after it raised interests by 0.75 percent last month, as Biden said he would allow the central bank to do what it needs to fix the problem.
Inflation in the U.S. rose to 9.1 percent in June, the highest since 1981 and above what economist had predicted
President Joe Biden (pictured at a conference in Israel on Wednesday) called the rising inflation ‘unacceptably high,’ but said that prices have been going down as he said tackling inflation is now his top priority
Both the Dow Jones Industrial Average (left) and the S&P 500 (right) fell on Wednesday morning
BIDEN’S FULL STATEMENT ON RECORD HIGH INFLATION
While today’s headline inflation reading is unacceptably high, it is also out-of-date. Energy alone comprised nearly half of the monthly increase in inflation.
Today’s data does not reflect the full impact of nearly 30 days of decreases in gas prices, that have reduced the price at the pump by about 40 cents since mid-June. Those savings are providing important breathing room for American families. And, other commodities like wheat have fallen sharply since this report.
Importantly, today’s report shows that what economists call annual ‘core inflation’ came down for the third month in a row, and is the first month since last year where the annual ‘core’ inflation rate is below six percent.
Inflation is our most pressing economic challenge. It is hitting almost every country in the world. It is little comfort to Americans to know that inflation is also high in Europe, and higher in many countries there than in America.
But it is a reminder that all major economies are battling this COVID-related challenge, made worse by Putin’s unconscionable aggression.
Tackling inflation is my top priority – we need to make more progress, more quickly, in getting price increases under control. Here is what I will do:
First, I will continue to do everything I can to bring down the price of gas. I will continue my historic release of oil from our strategic petroleum reserve. I will continue working with our European allies to put a price cap on Russian oil – sapping Putin of oil revenue.
And, I will continue to work with the U.S. oil and gas industry to increase production responsibly — already, the U.S. is producing 12.1 million barrels of oil per day and is on track to break records.
But I will also continue to insist – as I have with urgency recently – that reductions in the price of oil must produce lower gas prices for consumers at the pump.
The price of oil is down about 20% since mid-June, but the price of gas has so far only fallen half as much. Oil and gas companies must not use this moment as an excuse for profiting by not passing along savings at the pump.
Second, I will urge Congress to act, this month, on legislation to reduce the cost of everyday expenses that are hitting American families, from prescription drugs to utility bills to health insurance premiums and to make more in America.
Third, I will continue to oppose any efforts by Republicans – as they have proposed during this campaign year — to make things worse by raising taxes on working people, or putting Social Security and Medicare on the chopping block every five years.
Finally, I will continue to give the Federal Reserve the room it needs to help it combat inflation.
Lower-income and Black and Hispanic Americans have been hit especially hard by inflation because a disproportionate share of their income goes toward such essentials as housing, transportation and food.
Some economists have held out hope that inflation might be reaching or nearing a short-term peak.
Gas prices, for example, have fallen from the eye-watering $5 a gallon reached in mid-June to an average of $4.66 nationwide as of Tuesday – still far higher than a year ago but a drop that could help slow inflation for July and possibly August.
In addition, shipping costs and commodity prices have begun to fall, pay increases have slowed, and surveys show that Americans’ expectations for inflation over the long run have eased – a trend that often points to more moderate price increases over time.
But American pockets are still being burdened as Sweet told the New York Post that household spending last month had gone up nearly $40 compared to May, which was at $460.
Sweet calculated the figure based on the average U.S> household spending in June compared to what would have been spent in 2018 and 2019 when inflation was at 2.1 percent.
Inflation has caused prices for basic goods to soar, including the prices of meat and poultry, which went up by 10.4 percent, cereal, up 15.1 percent, and fruits and vegetables, up 8.1 percent.
Gas prices are up nearly 60 percent over the past year, with the cost of air fares up more than 34 percent and price of used cars up more than 7 percent.
Apparel cost shot up by 5.2 percent, overall shelter costs went up 5.5 percent, and on average, delivery services have gone up 14.4 percent.
‘The good news is that the increases in the CPI over the past few months won’t be duplicated in July,’ Sweet told The Post, echoing predictions that June might be the last month inflation soars.
Yet worries over inflation and the nation’s economy are at the forefront of American’s minds as forty percent of adults said in a June AP-NORC poll that they thought tackling inflation should be a top government priority this year, up from just 14 percent who said so in December.
In his statement on Wednesday, Biden agreed that this was his top priority as he continued to blame soaring inflation on the war in Ukraine and the effects of the COVID-19 pandemic.
‘Inflation is our most pressing economic challenge,’ Biden said. ‘But it is a reminder that all major economies are battling this COVID-related challenge, made worse by Putin’s unconscionable aggression.’
The president vowed to continue releasing America’s strategic oil reserves to help combat gas prices, push for legislation to reduce American’s healthcare and utility costs and to oppose ‘efforts by Republicans’ to raise taxes for working Americans.
Biden also said he would allow the Federal Reserve to work freely on what it needs to do to combat inflation.
Biden, who has repeatedly blamed soaring inflation and gas prices on the war in Ukraine and greedy oil companies, admitted that ‘Inflation is the bane of our existence,’ last month as he shifted blame to the pandemic and its global impact.
‘Most of it’s the consequence of what’s happened, what happened as a consequence of the COVID crisis,’ Biden told NBC’s Lester Holt regarding the economic stress American’s are facing.
The president also refuted predictions from many economic experts who predicted the U.S. would face a recession in the coming months.
‘First of all, it’s not inevitable,’ he said. ‘Secondly, we’re in a stronger position than any nation in the world to overcome this inflation.
‘Be confident, because I am confident we’re better positioned than any country in the world to own the second quarter of the 21st century,’ Biden said. ‘That´s not hyperbole, that’s a fact.’
The U.S. matches inflation in the United Kingdom, which reached 9.1 percent in May, the highest level in four decades, driven mostly by higher gas and food costs.
In the 19 European countries that use the euro currency, inflation hit 8.1 percent that month, from a year earlier, the most on records dating back to 1997.
Canada’s inflation rate currently sits at 7.7 percent, with Japan at only 1.9 percent and China’s inflation rate hitting 2.5 in May. Russia saw it’s inflation rate hit 17.1 percent last month.
The latest U.S. report landed during a week when a poll showed nearly two-thirds of Democrats preferred a candidate besides Biden for 2024.
House Speaker Nancy Pelosi came in with an up-beat assessment, on a day her party’s House campaign arm announced a record campaign fundraising haul while facing dire predictions for 2022.
‘I think we’re peaking — I think we’re going to be going down from here,’ Pelosi said.
Key Democratic centrist Joe Manchin, however, warned that his party should not try to make light of the situation or overpromises more than they can realistically deliver.
‘Today’s inflation data illustrates the pain families across the country are feeling as costs continue to rise at a historic rate. 9.1 percent is cause for serious concern,’ the West Virginia Democrat said.
‘Items like chicken, eggs and lunchmeat have increased to new highs, while energy costs rose more than 40% in June with those that can least afford it suffering the most. It is past time we put our country first and end this inflation crisis.’
Senate Minority Leader Mitch McConnell pounced on the new data, saying the ‘all-Democratic government produced yet another absolutely terrible, terrible inflation report.’
Federal Reserve rolled out one of its biggest rate hikes last month to stem a surge in inflation. Traders now expect that the Fed to push interest rates up an additional 1 percentage point in July
Federal Reserve Board Chairman Jerome Powell (pictured) said the Fed would likely raise interest rates up by 0.75 percent in July, with Biden saying the Fed was free to do what it needed. Economist say that the Fed’s actions would likely push the nation into a recession that would bring down inflation while at the same time hurting Americans’ pockets
U.S. STOCKS CONTINUE TO PLUMMET AS SIGNS POINT TO A RECESSION
Analysts from Deutsche Bank, Bank of America and Goldman Sachs and other financial experts have all predicted that the U.S. is headed into a recession.
Fears were further solidified after the nation closed one of its worst fiscal quarters at the end of June, with the S&P 500 seeing its worst half-year report since 1970.
In the last six months, the benchmark index has fallen by 853 points, or 18.32 percent.
Meanwhile, the Dow Jones Industrial Average fell 5,362 points, about 14.75 percent, and the Nasdaq fell by 3,696 points, or 23.86 percent.
While many economist believed a recession would hit by 2023, the Federal Reserve Bank of Atlanta’s Gross Domestic Product (GPD) tracker recorded a 1.9 percent drop in July.
Coupled with a fall of 1.6 percent in the first quarter, the drops fit within the definition of a recession, a period of economic decline across the board identified by a fall in GPD over two successive quarters.
The U.S. is slated to unveil its official GPD numbers at the end of the month, which will reveal if America has truly entered a recession.
The continued monthly increases of inflation 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 percent to 1.75 percent.
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.
According to Market Watch, about 42 percent of traders expect the Fed to go beyond the 0.75 percent hike and implement a full 1 percentage point increase during its next meeting this month.
It personifies the fears brought on by the latest inflation report as only 7 percent of traders had believed a 1 percent hike was possible on Tuesday.
Powell has emphasized 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.
Some economists worry that the Fed’s desire to quell inflation could cause it to hike rates too quickly, even as the economy, by some measures, is slowing. Much higher borrowing costs could tip into recession next year.
The Bank of America analysts, led by economist Ethan Harris, warned that inflation has gotten to a point where a severe recession will be necessary to reign it in.
‘What seems to be forgotten here is that inflation is a sticky, slow moving variable,’ the analysts wrote.
‘The market is not a good gauge of inflation expectations for ‘real people’ and investors have an oversimplified view of the link between growth and inflation,’ they added. ‘In our view, it is going to be extremely hard for the Fed to get inflation back to target in a two-year time span.’
Concerns over the predicted recession have only heightened after the markets ended their second fiscal quarter at another low at the end of June. The S&P 500, specifically, saw its worst quarter since the beginning of 2020, and worst half year since 1970.
The U.S. is slated to unveil its official Gross Domestic Product numbers at the end of the month, which will reveal if America has truly entered a recession if the GDP is shown to have dipped for a second successive quarter.
Over the last six months, the S&P 500 fell by 853 points, or 18.32 percent, marking its worst performing half-year since 1970
The Dow Jones Industrial Average fell 5,362 points, about 14.75 percent in 2022
The Nasdaq Composite fell by 3,696 points, or 23.86 percent, over the last six months
Consumers have started to pull back a bit on spending, home sales are falling as mortgage rates rise, and factory output slipped in May.
The Fed would like to see weaker growth, which should help bring down inflation. Healthy job gains in June point to an economy that is still expanding, with little sign of an imminent recession.
Inflation is likely to slow later this year, but it’s not clear by how much.
Oil prices fell Tuesday to about $96 a barrel and other commodities, including metals such as copper, have also gotten cheaper, mostly because of recession fears in the U.S. and Europe.
Shipping costs for international freight have fallen and there are fewer ships stuck at the Port of Los Angeles and Long Beach, America’s largest.
Wholesale gas prices have fallen to about $3.40 a gallon, which suggests retail prices could drop to as low as $4.20 by August, according to Omair Sharif, founder of Inflation Insights.
Cash prices have dropped below $5 this month after soaring for a year
Economist predicted prices would drop in July to relive hard-hit American consumers
Wholesale used car prices are also falling, which point to declining used car prices in the coming months.
Yet plenty of items are still rising in price. Apartment rents have jumped as more solid job gains and wage increases have encouraged more Americans to move out on their own.
Average rents for new leases have increased 14 percent in the past year, according to real estate brokerage Redfin, to an average of $2,016 a month.
Rents as measured by the government’s inflation index have increased more slowly because they include all rents, including existing leases.
But economists expect the rising expense of new leases will push the government’s inflation measure higher in the coming months.
Euro falls BELOW the Dollar for the first time in 20 years off the back of soaring US inflation and raising bets that Fed will aggressively hike interest rates
European shares fell sharply on Wednesday, after U.S. inflation for June came in higher than expected, raising bets about a more aggressive Federal Reserve next week and pushing the euro below parity with the dollar for the first time in 20 years.
Data showed U.S. consumer prices accelerated to 9.1 percent in June as gasoline and food costs remained elevated, resulting in the largest annual increase in inflation in 40 years.
A Reuters poll had expected an 8.8 percent rise. While a 75 basis points interest rate hike by the Fed this month was more or less priced in, the data drove expectations of a bigger hike.
As the dollar rallied, the euro fell below $1 per greenback for the first time in almost two decades, spelling more trouble for euro zone inflation already at record highs as a Russia-Ukraine war keeps energy prices elevated.
The euro fell briefly below the American dollar on Wednesday as European stocks plummeted
Europe’s biggest benchmark index fell by 413 points on Wednesday, down 0.94 percent
The pan-European STOXX 600 index fell up to 1.9 percent to session lows. It was down around 0.7 percent before the data. Wall Street futures turned negative.
All major sectors were well in the red, led by travel and auto stocks which lost more than 3 percent each. Healthcare, banks and luxury stocks were the biggest drags on the STOXX 600 index.
Michael Brown, head of market intelligence at Caxton said: ‘The market has got about one in five chance priced at the moment that the Fed could go 100 basis points in July and that is what investors are focusing on because quite clearly the inflation situation in the U.S. is getting worse rather than getting better.’
The data feeds into global recession fears. Most major central banks have recently signaled inflation control is the near-term priority, pressuring risky assets, as investors fear aggressive policy tightening will squeeze growth.
This raises pressure on the European Central Bank, due to meet after the Fed this month. The ECB is seen delivering its first rate hike in more than a decade.
‘Euro weakness could make the inflation problem worse for the euro area, as imports become more expensive. This could lead the ECB to stay hawkish for longer,’ said Andrea Cicione, head of strategy at TS Lombard.
All major European bourses slipped more than 1 percent, with the German DAX, down 1.4 percent, leading the decline.