Inflation Accelerates to a New 40-Year High in June

U.S. consumer inflation as tracked by the Consumer Price Index (CPI) accelerated to a new 40-year high of 9.1% in June, the Bureau of Labor Statistics (BLS) reported Wednesday. It is the highest annual rate of inflation since November of 1981.

Annual headline inflation came in above analysts’ expectations of 8.8%. On a monthly basis, consumer prices rose 1.3%, outpacing the 1.0% gain recorded in May. Meanwhile, core inflation, which excludes more volatile food and energy prices, rose 0.7% in June, compared with expectations for a 0.5% gain after May’s 0.6% rise. The core rate was 5.9% higher from a year ago, slightly below the 6.0% rate recorded in May.

Energy Costs Lead Price Gains

Rising prices of gasoline and other energy products far outpaced other categories, driven by rising prices for oil and other energy commodities during the first half of June. Gasoline prices rose 11.2% month-over-month, and just shy of 60% year-over-year. Energy prices at large increased at a monthly rate of 7.5%, and 41.6% year-over-year. The annual largest increase within the energy category came from prices for fuel oil, which rose at a blistering 98.5% rate year-over-year.

Rising Grocery Costs Drive Food Inflation

Food inflation continued on an upward trajectory, recording a 10.4% year-over-year increase in June. Food at home, which tracks the prices of groceries and other consumer staples, rose at a 12.2% annual rate, outpacing the comparatively lower 7.7% rate recorded for food away from home. Within this category, prices for meat, poultry, and eggs rose 11.7% on an annual basis. On a monthly basis, food at home decelerated to a 1.0% monthly rate from 1.4% in May, while food away from home accelerated to a 0.9% rate, from 0.7% in May. For the aggregate food subindex, price growth slowed somewhat to a 1.0% gain in June, down from May’s 1.2% rise.

Implications for Near-Term Monetary Policy

A hotter-than-expected inflation report is likely to solidify a more hawkish policy stance by the Federal Reserve, with a rate hike of 75 basis points (bps) likely at the FOMC’s upcoming June policy meeting. 

The Fed has been raising rates aggressively this year in an attempt to combat soaring inflation, having raised its benchmark federal funds rate by a cumulative 150 bps since March. The Fed’s current policy stance marks a sharp divergence from the previous two years, when the nation’s central bank kept interest rates at record low levels in order to stimulate the economy following the onset of the COVID-19 pandemic.