July 13, 2022
U.S. inflation likely reached a new 40-year high in June, driven up by a spike in gas costs, more expensive food and rent, and pricier cars and hotel rooms.
A government report Wednesday is expected to show that consumer prices soared 8.8% in June compared with a year earlier, according to data provide FactSet.
That would be an increase from 8.6% in May and the biggest yearly rise since December 1981.
Inflation at that level would make it highly likely the Federal Reserve will implement another large interest rate increase at its next meeting in two weeks.
Higher rates are intended to cool consumer and business spending and slow the economy and inflation.
Such large price increases would also highlight the brutal impact that inflation has had on many families’ finances, as the costs of many necessities has soared at a faster pace than incomes.
Lower-income Americans and Black and Hispanic families have fared worse, as a greater percentage of their budgets are spent on items like gas and food.
So far in July, however, gas prices have fallen from the eye-watering $5 a gallon reached in mid-June to an average of $4.66 nationwide as of Tuesday.
That is still far higher than a year ago, but the drop points to the potential for sharply lower inflation this month and possibly in August.
Inflation is likely to slow later this year, but it’s not clear by how much. Oil prices fell Tuesday to about $96 a barrel and other commodities, including metals such as copper, have also gotten cheaper, mostly because of recession fears in the U.S. and Europe.
Shipping costs for international freight have fallen and there are fewer ships stuck at the Port of Los Angeles and Long Beach, America’s largest. Wholesale gas prices have fallen to about $3.40 a gallon, which suggests retail prices could drop to as low as $4.20 by August, according to Omair Sharif, founder of Inflation Insights. Wholesale used car prices are also falling, which point to declining used car prices in the coming months.
Yet plenty of items are still rising in price. Apartment rents have jumped as more solid job gains and wage increases have encouraged more Americans to move out on their own.
Average rents for new leases have increased 14% in the past year, according to real estate brokerage Redfin, to an average of $2,016 a month.
Rents as measured by the government’s inflation index have increased more slowly because they include all rents, including existing leases. But economists expect the rising expense of new leases will push the government’s inflation measure higher in the coming months.
Inflation has spiked overseas as well. It reached 9.1% in the United Kingdom in May, the highest level in four decades, driven mostly by higher gas and food costs.
In the 19 European countries that use the euro currency, it hit 8.1% that month, from a year earlier, the most on records dating back to 1997.
Excluding the volatile food and energy categories, prices likely rose 0.6% in June for the third straight month and 5.7% from a year earlier.
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