Inflation in the US rose to 9.1 percent in June, the highest level since 1981 and more growth than economists had predicted.
The consumer price index, a broad measure of goods and services in the country, soared higher than the Dow Jones by 8.8 percent.
That’s the biggest 12-month increase in nearly four decades, compared to an 8.6 percent jump in May. On a monthly basis, prices rose 1.3 percent from May to June, another big increase after prices jumped 1 percent from April to May.
The continued price hikes highlight the harsh impact of inflation on many families, with the cost of essentials in particular rising far faster than average incomes.
The unrelenting surge in inflation has caused a sharp drop in consumer confidence in the economy, dented President Joe Biden’s approval ratings and posed a serious political threat to Democrats in November’s congressional elections.
US inflation rose to 9.1 percent in June, the highest rate since 1981
About 40 percent of American adults said fighting inflation should be a top priority for the Biden administration as the issue continues to hurt his approval ratings
Low-income blacks and Latinos are particularly hard hit because a disproportionate share of their incomes go toward necessities like housing, transportation, and food.
Some economists hope that inflation may reach or approach a short-term peak.
Gas prices, for example, fell from a staggering $5 a gallon in mid-June to an average of $4.66 nationwide on Tuesday — still well above a year ago, but the drop could help slow inflation in July and, maybe August.
In addition, shipping costs and commodity prices have started to fall, wage growth has slowed, and surveys show Americans’ long-term inflation expectations have fallen — a trend that often points to more modest price increases over time.
Still, concerns about inflation and the national economy are at the forefront of Americans’ minds, as 40 percent of adults said in a June AP-NORC poll that fighting inflation should be a top government priority this year, compared to just 14 percent who said so in December.
Biden, who has repeatedly blamed rising inflation and gas prices on the war in Ukraine and greedy oil companies, admitted last month that “inflation is the bane of our existence” as he shifted the blame to the pandemic and its global impact.
“A lot of it is a consequence of what happened, what happened as a result of the COVID crisis,” Biden told NBC’s Lester Holt regarding the economic stress Americans are facing.
The president also defied the predictions of many economic experts who predicted that the US would face a recession in the coming months.
“First, it’s not inevitable,” he said. “Secondly, we are in a better position than any nation in the world to overcome this inflation.
“Be confident, because I am confident that we are in a better position than any other country in the world to own the second quarter of the 21st century,” Biden said. “That’s not hyperbole, that’s fact.”
Inflation broke out abroad. In the United Kingdom, it hit 9.1 percent in May, the highest level in four decades, mainly due to higher gasoline and food prices.
In the 19 European countries that use the euro, it reached 8.1 percent that month from a year earlier, the highest since 1997.
Continued monthly gains in inflation are likely to strengthen the Federal Reserve’s case for another significant 0.75 percentage point increase in the benchmark short-term interest rate, which is currently in a range of 1.5 percent to 1.75 percent.
At their rate-setting meeting last month, Fed officials raised rates by 0.75 percentage points, the largest increase in nearly three decades.
The persistence of inflation has unnerved Fed Chairman Jerome Powell and other Fed officials, who have engaged in the fastest series of rate hikes since the late 1980s in an attempt to stop it.
Powell stressed that the central bank wants to see “compelling evidence” that inflation is slowing before reversing rate hikes. Such evidence should represent “a series of declines in monthly inflation rates,” he said at a news conference last month.
Some economists worry that the Fed’s desire to stop inflation could lead to rate hikes too quickly, even as the economy, by some measures, is slowing. Much higher borrowing costs could translate into a recession next year.
Consumers started to cut back spending a bit, home sales fell as mortgage rates rose, and factory production fell in May.
The Fed would like to see weaker growth, which should help lower inflation. June’s healthy job gains indicate the economy is still growing, with no signs of an imminent recession.
Inflation is likely to slow later this year, but it is not yet clear by how much.
Oil prices fell to around $96 a barrel on Tuesday, while other commodities, including metals such as copper, also fell, largely on fears of a recession in the US and Europe.
The cost of international freight has fallen, and fewer ships are stuck at the Port of Los Angeles and Long Beach, America’s largest.
According to Amair Sharif, founder of Inflation Insights, wholesale gas prices fell to about $3.40 a gallon, suggesting that retail prices could drop to $4.20 by August.
Cash prices fell below $5 this month after rising sharply over the year
Economist predicts prices will fall in July to revive battered US consumers
Wholesale used car prices are also falling, pointing to lower used car prices in the coming months.
However, many commodities are still rising in price. Apartment rents have jumped as more stable jobs and higher wages have encouraged more Americans to move out on their own.
The average rent for new leases rose 14 percent last year to an average of $2,016 a month, according to brokerage Redfin.
Rents, as measured by the government’s inflation index, rose more slowly because they include all rents, including existing leases.
But economists expect rising costs of new leases to push up the government’s inflation gauge in the coming months.