US inflation accelerated in June by more than forecast, led by elevated prices for gasoline, food and housing costs and resulting in the largest annual increase in inflation in more than 40 years.
The news virtually guarantees that the Federal Reserve will hike interest rates by another three-quarters of a point this month.
The consumer price index increased 1.3% last month after advancing 1% in May, the US labor department said, pushing inflation to 9.1% from 8.6%. Economists polled by Reuters had forecast the CPI would rise 1.1%.
Eight cities registered double-digit inflation, up from four in May. Seattle, Miami, Houston and Baltimore broke the threshold for the first time since records began two decades ago.
The other four cities experiencing inflation above 10% were Atlanta, Tampa, Riverside-San Bernardino in California, and Phoenix, which has had the highest big-city inflation rate throughout 2022.
Joe Biden urged Americans to stay calm and said his administration was committed to tackling the problem.
“While today’s headline inflation reading is unacceptably high, it is also out of date,” Biden said, saying gas prices have fallen by 40 cents since mid-June.
“Those savings are providing important breathing room for American families,” the president said. “Other commodities like wheat have fallen sharply since this report.”
US inflation figures, coupled with expectations of higher interest rates, helped push the dollar to parity against the euro for the first time in almost two decades.
The euro tanked as much as 0.4% to a low of $0.9998, its lowest level since December 2002, down more than 10% against the dollar this year.
The war in Ukraine has increased uncertainty over the eurozone economy with the dollar viewed as a safe haven as the Fed raises interest rates.
The sharp rises in US consumer prices, many economists say, is driven by a global supply chain crisis exacerbated by war in Ukraine and the effects of massive fiscal stimulus early in the Covid-19 pandemic.
Bank of America said Wednesday it anticipates a “mild” recession, with US GDP declining this year by 1.4%, before rebounding by 1% next year. Unemployment is projected to jump from the historically low level of 3.6% today to 4.6%, the bank said. Goldman Sachs has said the risk of a recession this year is doubtful, but rises to 50/50 over the next two years.
The inflation figures add to pressure on Biden, who has faced approval ratings as low as 33%, and on congressional Democrats, whose support has slumped ahead of midterm elections.
On Wednesday, Biden was set to travel to Saudi Arabia in an attempt to persuade Riyadh to increase oil production and bring down the price of crude. Most analysts say the attempt is doomed: Saudi Arabia is not believed to have spare capacity or to be willing to abandon agreements with OPEC+ which includes Russia, sanctioned by the west over Ukraine.
US gasoline prices hit record highs in June, averaging above $5 a gallon, according to data from the motorist advocacy group AAA. They were averaging $4.631 a gallon on Wednesday.
June’s inflation figures follow stronger-than-expected job growth, with the US economy creating 372,000 jobs last month, suggesting rising costs have yet to fully translate into falling demand, which may bring inflation down to the Fed’s 2% target.
With the Fed almost certain to raise interest rates, some economists predict the rise could go to a full percentage point rise on top of increases of 1.5% since March.
“The Fed is likely going to send a hawkish message at the July meeting and it would be a mistake to think that a rate hike less than [0.75%] is in the cards,” Charlie Ripley, a senior investment strategist at Allianz Investment Management, said in an email.
After the announcement, the S&P 500 fell 1.2% on fears that the rapid increase in prices could undermine spending and corporate profits. But such fears could be offset by declines in the cost of oil, copper, wheat and corn. As retailers warn of the need to discount goods and consumers dip into savings, price pressures could ease.
But the Fed will want above all else to stop consumers and companies accepting a long period of high inflation as inevitable and thus self-reinforcing.
Michael Pearce, senior US economist at Capital Economics, said there were reasons for optimism. He said: “The outlook for inflation does not look as bleak as it did a month ago.”
Reuters contributed reporting
