Sarah Tew/CNET
What’s happening
Inflation hit a US record high in June. As the Fed prepares to raise rates again,
economists say that a recession, or even stagflation, is a high risk.
Why it matters
Stagflation (a rare combination of high inflation and high unemployment)
ravaged the US economy in the 1970s and early 1980s.
What it means for you
Soaring prices mean that gas, food and necessities are more expensive,
and a slow economy means it’s harder for Americans to earn money,
secure employment and save.
The latest Consumer Price Index report is out, and it’s not pretty. Inflation jumped by another 1.3% in June, making its 12-month rate of 9.1% the highest level of inflation since November 1981.
While gasoline, food and housing are the biggest drivers of inflation right now, prices are up across the board. “Core inflation” — the inflation rate not including food and energy — rose by 0.7% in June, after increasing by 0.6% the past two months. Price indices for medical care, car insurance, clothing, household furnishings and recreation all rose in June.
As wages struggle to keep up with skyrocketing prices for basic goods and more companies initiate layoffs, US households, particularly low-income Americans, are feeling severe financial strain on their wallets. The stock market is also taking a hit, with the S&P 500 down by 20% this year.
Here’s one curveball that makes June’s 41-year-high inflation data a lot worse
By Andrew Keshner’s Profile | MarketWatch Journalist | Muck Rack
– Yesterday 4:18 PM
As if June inflation data reaching a 41-year high wasn’t enough Wednesday, here’s some worse news: Americans’ earnings declined yet again last month when factoring in rising costs.
Here’s one curveball that makes June’s 41-year-high inflation data a lot worse
© Spencer Platt/Getty Images
Related video: Inflation hits highest level in 40 years – Search (bing.com)
New at 5 surging prices for gas, food and rent has catapulted
Duration 2:36
While the cost of living climbed 1.3% from May to June according to the
Bureau of Labor Statistics, it said that the inflation-adjusted average hourly
earnings actually declined by 1% in the same time period.
Last week, the June jobs report showed the average hourly wage
was $32.08 across all industries, a 0.3% month-over-month increase.
When the 0.3% monthly increase in average earnings takes the latest
CPI data into account, wages fell by 1% on the month.
When the 0.3% monthly increase in average earnings takes the latest CPI data into account, wages fell by 1% on the month. That’s a 3.6% contraction in real hourly earnings year-over-year, paired against a 9.1% annualized inflation rate in June.
Year-over-year decreases in real hourly earnings have been occurring since April 2021, according to the Bureau of Labor Statistics.
Harvard University economist Jason Furman, who chaired the White House’s Council
of Economic Advisers for several years during the Obama administration, ALSO tweeted Wednesday that it was “another brutal [Consumer Price Index] report.” And the earnings data fared no better in his view.
Raises are one obvious solution. Employers are trying to entice and keep workers
with pay increases, but employers have to grapple with rising costs too.
Across all sectors, nominal hourly wages grew 5.1% on the year, according to the June
jobs report. Compared to the last decade, that’s a significant number — but it’s no match for current inflation rates.
During June, leisure and hospitality jobs were the one place where hourly wage growth was keeping up with inflation. There, hourly pay grew by 9.1% on the year, exactly the same percentage increase as the CPI.
During June, leisure and hospitality jobs were the one place where hourly wage growth was keeping up with inflation. Here’s the catch: the rate of pay for restaurants, bars and hotel workers was $20.16, below the going rate for many jobs.
Some critics say corporate America has been greedy with profits, at the expense of consumers and rank and file workers. The upcoming earnings season could shed more light on the issue. In the meantime, waning purchasing power is grinding people down.
It just takes a trip to the grocery store to remember that. The latest inflation data showed grocery prices climbing 1% month over month and 12.2% year-over-year, marking the biggest increase since 1979.
Read also: Biden: June inflation figures “unacceptably high” but out-of-date (msn.com)
It marks the fastest pace of inflation since December 1981.
So-called core prices, which exclude more volatile measurements of food and energy, climbed 5.9% from the previous year. Core prices also rose 0.7% on a monthly basis – higher than in April and May – suggesting that underlying inflationary pressures remain strong and widespread.
SEVERE RECESSION NEEDED TO COOL INFLATION, BANK OF AMERICA ANALYSTS SAY OR STOP ILLEGAL MIGRANTS FROM COMING HERE WITH ONLY A BACKPACK STRAPPED TO THEIR BACK — WOULD BE A GOOD START.
WE THE PEOPLE HAVE TO PAY TO GET THEM STARTED WITH
INCREASE INSURANCE PREMIUMS!!!
Price increases were extensive, suggesting inflation may not be near its peak: Energy prices rose 7.5% in June from the previous month, and are up 41.6% from last year. Gasoline, on average, costs 59.9% more than it did one year ago and 11.2% more than
it did in May. The food index, meanwhile, climbed 1% in June, as consumers paid more
for items like cereal, chicken, milk and fresh vegetables.
In another worrisome sign, shelter costs – which account for roughly one-third
of the CPI – sped up again in June, climbing 0.6%, matching an 18-year-high set
in May. On an annual basis, shelter costs have climbed 5.6%, the fastest since
February 1991.
Rent costs also surged in June, jumping 0.8% over the month, the largest monthly increase since April 1986. Rising rents are a concerning development because higher housing costs most directly and acutely affect household budgets.
Another data point that measures how much homeowners would pay in equivalent rent
if they had not bought their home, also jumped 0.7% in June from the previous month.
AMERICANS’ INFLATION EXPECTATIONS HIT A FRESH 11-YEAR HIGH IN JUNE, NEW YORK FED SAYS
People shop for frozen food at a store in Rosemead, California on June 28, 2022.
((Photo by Frederic J. Brown/AFP via Getty Images) / Getty Images)
“CPI delivered another shock, and as painful as June’s higher number is, equally as bad is the broadening sources of inflation,” said Robert Frick, corporate economist with Navy Federal Credit Union. “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.” Stocks fell following the report, while government bond yields jumped.
Ticker Security | Last Change | Change %
I:DJI
DOW JONES AVERAGES 31288.26 +658.09 +2.15%
SP500
S&P 500 3863.16 +72.78 +1.92%
I:COMP
NASDAQ COMPOSITE INDEX 11452.421129 +201.24 +1.79%
Scorching hot inflation has created severe financial pressures for most U.S. households, which are forced to pay more everyday necessities like food, gasoline and rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily impacted by price fluctuations.
Although American workers have seen strong wage gains in recent months, inflation has largely eroded those: Real average hourly earnings decreased 1% in June from the previous month when accounting for higher consumer prices, according to the Labor Department. On an annual basis, real earnings actually dropped 3.6% in June.
Rampant inflation and the rapid dissolution of Americans’ buying power has become a major political liability for Biden ahead of the November midterm elections, in which Democrats are expected to lose their already razor-thin majorities. Surveys show that Americans see inflation as the biggest problem facing the country – and that many households blame Biden for the price spike.
The president has blamed higher prices on greedy corporations, supply chain bottlenecks and other pandemic-induced disruptions in the economy, as well as the Russian war in Ukraine. Most economists now agree that unprecedented levels of government stimulus and a stronger-than-expected recovery from the pandemic have also played at least some role in exacerbating the price spike.
In a statement after the report’s release, Biden acknowledged that inflation is “unacceptably high” and called tackling it his “top priority.” But he suggested the data is “out-of-date,” arguing that record-high gas prices are to blame for the ugly CPI reading — and noted that prices at the pump have since subsided.
“While today’s headline inflation reading is unacceptably high, it is also out-of-date,” Biden said. “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.”
The Marriner S. Eccles Federal Reserve building in Washington, D.C., US, on Wednesday, July 6, 2022. (Photographer: Al Drago/Bloomberg via Getty Images)
The worse-than-expected report will also have major implications for the Federal Reserve, likely solidifying a series of aggressive rate hikes — as central bank officials try to tame inflation. Policymakers already raised the benchmark interest rate by 75 basis points last month for the first time since 1994 and have confirmed that a similarly sized increase is on the table in July.
With inflation running even hotter than economists expected in June, Wall Street is now ramping up the odds of a mega-sized, 100-basis point hike in July. About 38% of traders are now pricing in the chances of a 100-basis point increase later this month, according to the CME Group’s FedWatch tool, which tracks trading.
Biden Lies About Everything: President Biden Statement on CPI Inflation in June | The White House
Still, the Fed is in a precarious situation as it walks the line between cooling consumer demand and bringing inflation closer to its 2% target without inadvertently dragging the economy into a recession. Hiking rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending.
“Inflation continues to broaden out with price increases inside the core implying that it will require strong and sustained policy action out of the Federal Reserve that risks sending the economy into recession early next year,” Joe Brusuelas, RSM chief economist, said. “In our estimation there is a 45% probability of a recession over the next twelve months.”
Americans’ inflation expectations hit a fresh 11-year high in June, New York Fed says.
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The End of this Chart could be parabolically hyperinflation combined with deflation