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Another 40-Year High in Inflation

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As a result of ongoing price rises in gas, food, and rent, inflation increased once again in the month of June, reaching a record high point in the last 40 years. This development most certainly solidified the Federal Reserve's intentions for another significant rate increase this month.

According to data from the Labor Department's Consumer Price Index that was issued on Wednesday, prices increased by 9.1 percent year on year, which is an increase from 8.6 percent the previous month and the highest growth seen since November 1981. According to the results of a survey conducted by Bloomberg, analysts anticipate that inflation would hit 8.8 percent.

In June, prices paid by consumers rose by 1.3 percent on a monthly basis, marking the highest rise since 2005. This is in comparison to May's growth of 1 percent.

When asked about the most recent rise in prices, Ian Shepherdson, chief economist at Pantheon Macroeconomics, responded with a "Ouch" in a research note.

In conjunction with other economists, he highlighted that June most likely represented the top of inflation, despite the fact that a similar prognosis made in the spring proved to be incorrect due to the fact that the statement was made too early.

As part of a vigorous anti-inflation campaign, the Federal Reserve aims to increase its benchmark interest rate by three-quarters of a percentage point for the second month in a row. This study lends credence to the Fed's intentions to carry out these plans.

The announcement was a disappointment to investors who were already bearish. After the most recent numbers were made public, the Dow Jones Industrial Average saw a decline of more than 300 points. The S&P 500 index had a loss of 37 points, or around 1 percent. In addition to that, the rates on 10-year bonds rose. During the middle of the morning's trade, they were hanging around 3.03 percent. The price of gasoline continued to be the primary driver of inflation in June, with a monthly rise of 11.2% compared to the preceding month and an annual increase of 59.9%. The price of normal unleaded gasoline was $4.65 on Tuesday, which is an improvement from the previous month's average of $5.

The cost of food and household goods went up by 1% during the month of May and by 12.2% over the course of the previous year. Because of Russia's involvement in the conflict in Ukraine, worldwide supply of oil, wheat, maize, and other commodities have been interrupted, which has led to an increase in the price of both gasoline and food.

In June, the price of cereal went up by 2.5 percent from the previous month and by 14.2 percent from the same month a year earlier. Bread prices rose 1.6 percentage points from the previous month and 10.8 percentage points from the previous year. In May, chicken prices increased by 1.5 percent, but year-over-year they increased 17.3 percent.

There were a few indicators that held out hope. The price of bacon had its second straight significant monthly reduction, falling by 1.9 percent. In addition to that, the costs of beef and veal dropped by 2.3 percent. The recent decline in commodity prices may be attributed to concerns about economic contraction as well as weakening demand from consumers. The economist at Wells Fargo, Sam Bullard, believes that this has already resulted in lower gas costs and has created conditions that will lead to more modest price rises for food in the months to come.

Pooja Sriram, an economist working at Barclays, is of the opinion that increased prices of fertilizer for farmers might contribute to relatively high levels of food prices throughout the year. The situation in Ukraine has led to a spike in the price of fertilizer as well as the primary component of that product, which is natural gas. Russia is the top exporter of fertilizer in the world.

Core prices, which do not include the unpredictable effects of changes in food and energy costs, increased by 0.7% in June after increasing by 0.6% the previous month. This resulted in a decrease in the yearly growth from 6 percent in May to 5.9 percent.

Rents have risen by 0.8 percentage points every month and 5.8 percentage points over the last year as a result of individuals moving back into their own flats after taking refuge with family members during the epidemic.

Some positive changes occurred that should be encouraging to summer tourists. Despite increased demand, airline costs declined 1.8 percent and hotel rates fell 2.8 percent, but they are still up 34.1 percent and 10 percent , respectively, from a year earlier.

There are hints that inflation would likely fall in the next months. In addition to lowering commodity prices, supply chain concerns are beginning to improve, salary rises may be beginning to slow down, and retailers' overstocked inventories are prompting significant price reductions for their consumers.

Also, as the epidemic has began to wind down, consumers have started shifting their spending away from products and toward services like going out to eat and traveling. “This will be the last big increase,” Shepherdson of Pantheon Macroeconomics said.

The preceding is a summary of an article that originally appeared on The Daily Cable.

Written by Staff Reports

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