The consumer price index (CPI) rose 9.1% last month from a year earlier, data from the Labor Department showed on Wednesday, driven by rising gas, food, and rent costs.
Investors are now betting that the Federal Reserve will increase interest rates at its meeting later this month after a report showed that inflation is accelerating. The report also showed that inflation is still climbing though the rate of climb is slowing.
The Fed is under pressure to raise rates quickly and by large amounts to contain inflation, as business and consumer expectations of a torrid pace of future price increases could become entrenched.
“It really pushes the Fed even further into the corner they’ve been operating in. They need to raise rates quickly, and they need to raise rates by large amounts,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “Unfortunately, we were looking for good news, and this is not good news.”
The Bank of Canada raised its benchmark interest rate by 100 basis points on Wednesday as other countries tried to tackle the U.S. dollar-driven inflationary spread. Sri Lanka’s government is in total collapse for the same reason.
Atlanta Fed President, Raphael Bostic, said he would consider a whole point (100 basis point) rate hike if inflation grew too fast. The high inflation rate is also raising fears of a recession next year.
The Fed began tightening policy in March and has already raised its benchmark overnight lending rate by 1.5 percentage points. The tight labor market has so far withstood those swift rate hikes.
For every point increase, the Fed enacts things like credit card interest, auto loans, and home mortgages become more expensive. Thereby making it harder to buy in general and, in theory, cooling prices. The challenge is once wages, utilities, and rents go up, it is tough to reverse the effects of those things being baked in.
For more on this story, consider these sources:
- Inflation runs hotter in June as US faces recession risk – ABC News
- Inflation rose 9.1% in June, even more than expected, as consumer pressures intensify – CNBC
- US inflation surge signals tough times ahead – Financial Times