Inflation rate hit 9.1 percent annually in June

Inflation picked up speed in June after another surge in oil prices drove up costs throughout the economy, according to data released Wednesday by the Labor Department.

The consumer price index (CPI) rose 1.3 percent in June and 9.1 percent over the past 12 months. Economists expected monthly inflation to hit roughly 1 percent in June after prices rose 1 percent in May, and 8.8 percent annually after reaching 8.6 percent that month. Annual inflation reached the highest rate in June since November 1981.

While inflation has been rising steadily for more than a year, the war in Ukraine’s impact on global food, energy and commodity supplies has ramped up pressure on prices since the start of 2022.

Much of the June increase in inflation came from a 11.2 percent rise in gasoline costs and a 1 percent increase in food prices over the past month, according to Labor Department data. A 7.5 monthly increase in energy prices drove nearly half of the total monthly increase in the CPI, the Labor Department said.

Gasoline prices nationwide rose above $5 per gallon on average at the peak of June’s price climb, but fell off substantially in July.

The White House, which has struggled to tame inflation and public concern with it, played down the CPI report as outdated ahead of its Wednesday release.

Biden administration economic officials cited the July decline in gas prices and other signs of supply chain pressure easing throughout the economy as reason for optimism in a Tuesday memo to reporters. They also preemptively blamed the June inflation surge on Russian President Vladimir Putin and his nation’s quest to dominate Ukraine.

“While today’s headline inflation reading is unacceptably high, it is also out-of-date,” Biden said in a statement Wednesday after the report was released.

” 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.”

Even so, inflation without food and energy prices still rose 0.7 percent in June and 5.9 percent over the past 12 months, according to the Labor Department. The surge in core inflation far exceeded economists expectations and covered a large swath of the economy—including sectors largely unaffected by the war in Ukraine or sanctions imposed on Russia.

“CPI delivered another shock, and as painful as June’s higher number is, equally as bad is the broadening sources of inflation. Though CPI’s spike is led by energy and food prices, which are largely global problems, prices continue to mount for domestic goods and services, from shelter to autos to apparel,” said Robert Frick, corporate economist with Navy Federal Credit Union, in a Wednesday analysis.

Prices for shelter, used cars and trucks, medical care, motor vehicle insurance, and new vehicles rose the most among non-food and energy items in June, the Labor Department reported. Only airline fares and hotel rates fell in June, though airline fares remain up 34.1 percent over the past year.

Rising prices also took a serious bite out of household budgets in June. Average inflation-adjusted wages fell 1 percent in June alone when taking the 1.3 percent increase in the CPI out of a 0.3 percent increase in hourly earnings last month. Real wages are down a whopping 3.6 percent over the past 12 months after seasonal adjustments.

“Unlike last year when we had high inflation paired with a high demand for workers, businesses are currently less willing to raise wages in line with inflation given mounting concerns about a recession,” said John Leer, chief economist at Morning Consult, in a Wednesday analysis.

“Going forward, negative real wage growth will erode consumers’ purchasing power and exert additional pressure on personal finances,” he continued.

June marks the second consecutive month of inflation rising far higher and faster than economists expected. Another surprisingly strong surge in inflation will likely boost pressure on the Federal Reserve to hike interest rates at an even faster pace.

The Fed has already boosted its baseline interest rate range by 1.5 percentage points since March and is expects to raise rates by at least another 2 percentage points, according to projections released in June.

The combination of a strong June jobs report and concerning inflation report will keep the Fed on track to raise rates by at least 0.75 percentage points at its upcoming monetary policy meeting this month. The Fed issued its first 75 basis point hike since 1994 at its June policy meeting, less than a week after the Labor Department reported a steep May surge in inflation.

Fed Chair Jerome Powell and other top bank officials have hinted toward another 75 basis point hike in the weeks since their June meeting. But financial markets are now pricing in higher odds of a full 1-percentage point rate hike in July.

Options traders see a 59.5 percent chance of the Fed hiking interest rates by a full percentage point in July, according to the CME Group FedWatch tool, which tracks where financial markets expect the Fed’s baseline interest rate range to land. The odds of a 75 basis point hike were 40.5 percent.

Updated at 10:18 a.m.