That represents “the largest 12-month increase since the period ending November 1981,” according to the BLS.
That rate is well ahead of the Federal Reserve’s annual 2 percent target for inflation and will add to the belief that the Fed will raise interest rates again at its monthly meeting later in July.
In May, the annualized rate of inflation was 8.6 percent, which BLS said represented “the largest 12-month increase since the period ending December 1981,” while the annualized rate had been 8.3 percent in April.
Those figures are similar to the rate of inflation in the 19-country eurozone, which saw 8.6 percent annualized inflation in June and 8.1 percent in May.
Core inflation does not include food and energy, as these goods are subject to volatile prices. The annualized rate of inflation for all items less food and energy was 5.9 percent in June, down from 6 percent in May.
This Statista chart shows the year-on-year change in the Consumer Price Index for all urban consumers in the U.S.
The June U.S. inflation number exceeded the forecasts of economists who had been looking for a number of 8.8 percent. The U.S. has already been experiencing inflation at nearly 40-year highs.
Biden and the Democrats are facing tough midterm elections in November and persistently high inflation is very likely to remain a key issue with voters with less than four months until election day.
A poll from Pew Research published on May 12 found that 70 percent of Americans considered inflation to be a “very big problem.” The same poll also found that Americans believed inflation to be the top problem facing the country.
Energy and Food Costs
The cost of energy and food saw significant increases over the 12-month period ending in June and rose at a faster rate than in the 12-month period ending in May.
The energy index rose 41.6 percent over the last year, which the BLS noted on Wednesday was the largest 12-month increase “since the period ending April 1980.”
The increase was also higher than the annualized rate in May, which was 34.6 percent.
Similarly, the food index rose 10.4 percent over the same period, representing the largest 12-month increase since the period that ended in February 1981. May’s figures showed the food index had risen 10.1 percent, which was the first increase in food prices of 10 percent or more since the 12-month period ending in March 1981.
As was widely expected, the cost of gasoline rose significantly over the past year. The cost of gas was up 59.9 percent in the period ending in June.
However, the price of gas had been falling for 28 days as of Tuesday and the average price for a gallon of gas was just over $4.63 on Wednesday, according to the American Automobile Association (AAA). That will likely be reflected in July’s inflation figures, due to be released next month.
The shelter index, which measures the cost of housing, rose 5.6 percent in the year ending in June. That’s the largest one-year rise since the 12-month period that ended in February 1991. The same index had risen by 5.5 percent in the period ending in May.
Beyond the Top Line
Although the headline inflation figure is 9.1 percent, increases in the cost of many essential goods are well above that.
Compared to June last year, the overall category “food at home” is up 12.2 percent. Within that category, there are some far higher costs. For example, milk is up 17.1 percent, baby food is up 14 percent, chicken is up 18.6 percent and breakfast cereal is up 14.2 percent.
Anybody taking a flight will have noticed that airfares are up - the BLS calculates by 34.1 percent.
Some items have come down, however. The cost of buying a new TV is down 12.7 percent, and a new smartphone is 20 percent cheaper than last year. But the drop in prices may reflect the fact that buying such non-essential goods can be put off while consumers rebalance their spending amid a generally high cost of living.
The Fed and Recession
June’s inflation figures will reinforce the widely held belief that the Federal Reserve will increase interest rates again at its Federal Open Market Committee (FOMC) later this month, though there are also concerns that doing so could help to cause a recession.
The Fed raised interest rates by 75 basis points (1 basis point equals 0.01 percent) at its June meeting and the Fed’s benchmark funds rate is now in the range of 1.5 percent to 1.75 percent.
President Biden has insisted for months that a recession is not imminent. A recession is generally taken to mean two quarters of negative growth. Growth in U.S. Gross Domestic Product (GDP) fell in the second quarter and if it falls in the third, that will indicate the country is in recession.
With just four months until the midterm elections, stubbornly high inflation and a potential recession may prove a headache for Biden and the Democrats.
