US: Inflation accelerates to 9.1%, exceeding forecasts once again

Inflation accelerated more than anticipated in June, underscoring price pressures that kept the Fed on track for another major rate hike later this month. The consumer price index rose 9.1% year-on-year to its fastest rate since the end of 1981 and continued its rise of 8.6% in May. The broad headline inflation indicator increased 1.3% month-on-month, reflecting higher gas, shelter and food costs, the highest monthly increase since 2005. Expectations reflected an increase of 1.1% compared to May and 8.8% on an annual basis.

If we look at the sub-items; The core CPI, which excludes the more volatile food and energy components, rose 0.7% month-on-month and 5.9% higher than a year ago, above estimates. The most significant increase came on the energy side. The increase seems to have been broad-based, with the gasoline, housing and food indices making the biggest contributors. The energy index rose 7.5% monthly and the gasoline index rose 11.2%, contributing almost half of the increase in all items. The food index rose 1% in June. Nearly all major component indexes increased in the month, with shelter, used cars and trucks, medical care, motor vehicle insurance and new vehicles being the biggest contributors. Motor vehicle repair, clothing, household goods and operations, and entertainment indexes also increased in June.

The energy index rose 41.6% year-on-year, the biggest 12-month increase since the period ending in April 1980. The food index, on the other hand, increased by 10.4% in the 12-month period ending in June, the largest 12-month increase since the period ending in February 1981.

Contribution to CPI inflation by item

Soaring gasoline prices pushed June’s headline CPI to a new high after employment data showed the labor market remains firm. Modest demand for goods and high inventories at some retailers appear to have restrained core prices, even as rents rise strongly. Rent increase rates, on the other hand, still feed inflation and may affect the acceleration in main services items in the July-September period. Looking ahead, we may see some softening effect on CPI inflation for July. The reason for this will be the decrease in gasoline prices on a monthly basis, mainly due to the lagged reflection of the decline in oil prices. CPI has peaked for now, but even if it declines, it will remain high and the decline will be moderate.

If we look at the Fed’s point of view; The incoming data will provide an opportunity for central bankers to clarify their policy views in light of the latest data, before the pre-FOMC blackout period begins on July 16. Some policymakers have already voiced their support for another aggressive rate hike in July. The fact that CPI inflation hits a new high for the cycle in June is definitely the main issue the Fed will consider ahead of its July meeting. Even as growth slows, service activity intensities may prevent the economy from falling into a technical recession in 2022, supporting the Fed’s perspective to continue rate hikes.

With this result, the three-dose rate hike will be repeated in the same way, as conditions similar to the high inflation effect faced by the Fed before the June meeting, when policy makers increased rates by 75 basis points. The Fed’s policy success will depend on moderating the inflation outlook and avoiding a recession in growth. Rising inflation seems to have made the July rate hike of 75 basis points almost certain.

Kaynak Tera Yatırım / Enver Erkan
Hibya Haber Ajansı