Inflation accelerated to an explosive 9.1% for the 12 months ending in June, according to the consumer price index, the highest level in four decades.
The much-anticipated numbers reported by the Bureau of Labor Statistics on Wednesday revealed that inflation is still soaring, despite the Federal Reserve’s interest rate hikes, and is near the worst it has been since the Great Inflation that helped bring President Ronald Reagan to office.
STRONG JOBS REPORT BOLSTERS FED CAMPAIGN FOR HUGE RATE HIKES
The soaring inflation has eaten into President Joe Biden’s approval ratings as the midterm elections approach. Consumer prices have been rising fast since last August, especially for staples such as food and gas. In fact, until March’s CPI report, inflation had risen every month for eight months.
Rising energy prices accounted for half the total inflation, with the gasoline index rising a whopping 11.2%.
So-called core CPI, which strips out volatile food and energy prices, increased 5.9%.
“The offenders again were all too familiar to consumers, those being gasoline, food, and shelter. With their sentiment at the lowest level in years, consumers have a right to be highly distraught. They’re facing a combination of high and sustained inflation robbing them of purchasing power,” said Mark Hamrick, a senior economic analyst at Bankrate.
The Fed announced in March that it would raise its interest rate target by a quarter of a percentage point, the first rate hike since 2018, in an effort to rein in the higher prices, although some economists and many Republicans say the central bank should have moved sooner to reverse its pandemic emergency measures.
Since its first rate hike in March, the Fed has gotten much more aggressive in raising rates to battle the stickier-than-anticipated inflation. The central bank conducted an increase of half a percentage point in May and then, after the CPI ticked up to 8.6% that month, conducted a hike of three-fourths a percentage point — the first time it has done so since 1994.
Adding to the inflationary flames is the war in Ukraine. The conflict has pushed energy prices through the roof because Russia is one of the world’s largest producers of oil and natural gas.
The average price of gas in the United States broke record highs in June, surpassing $5 a gallon, according to AAA. Since then, oil prices have declined a bit, and gas is now averaging $4.66 per gallon.
Average weekly grocery spending is now at $148 per week, which is a major increase from the average spending of $113.50 prior to the start of the pandemic, according to data from FMI, the Food Industry Association.
At the turn of the year, the average 30-year fixed-rate mortgage was 3.11%, according to Freddie Mac. In just a matter of months, that same mortgage rate has increased to 5.3%, 2.4 percentage points higher than it was a year ago. The average price of an existing home recently crossed over the $400,000 threshold for the first time — a big increase from a year ago.
The Fed has signaled that it may do another big rate hike later this month, especially given that recent job and unemployment reports have remained positive, giving it a bit of confidence that it can raise rates further without causing economic carnage.
The economy added another 372,000 jobs in June — more than 100,000 more jobs than most economists had expected. The unemployment rate also remained at 3.6% in June, matching the ultralow level it was at right before the coronavirus pandemic struck.
The Fed’s rate hikes are designed to slow spending and drive down prices. The trade-off for dampening prices is that it also slows the economy and can result in the jobs market taking a hit and causing the country to tumble into a recession, a prospect that has become more likely over the past few months.
The economy contracted at a 1.6% annual rate in the first quarter, and the Atlanta Fed’s “GDPNow” tracker predicts that GDP growth will decrease in a second straight quarter, which would likely indicate that the country is in a recession.
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Other indicators, such as commodity prices, are also ringing alarm bells. The prices of oil, cotton, lumber, and copper have all recently been in decline, signaling that demand is falling off as the Fed quickly hikes rates.
Republicans are using the high inflation and possibility of a recession as an indictment of Biden’s presidency and are hoping that voters respond by allowing the GOP to regain control of both chambers of Congress in this year’s midterm elections.
