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Wholesale prices accelerated again in June as inflation seeped into every part of the U.S. economy, squeezing businesses and American households in the form of higher prices for most essential goods.
The Labor Department said Thursday that its producer price index, which measures wholesale inflation before it reaches consumers, rose 11.3 percent in June from a year earlier. On a monthly basis, prices increased by 1.1%.
Both figures were higher than the 10.7% annual and 0.8% monthly forecasts from Refinitiv economists, underscoring how strong inflationary pressures still are.
Core inflation at the wholesale level, which excludes more volatile measures of food and energy, rose 0.3% for the month, following increases of 0.4% in April and May. Over the past 12 months, core prices have risen by 6.4%. Economists praised the potential slowdown in the increase in core inflation, suggesting it could be a sign that consumer prices are starting to slow.
INFLATION RISES 9.1% IN JUNE, ACCELERATES MORE THAN EXPECTED TO NEW 40-YEAR HIGH
“It is clear that food and energy are driving PPI higher, as was the case with yesterday’s inflation print,” said Peter Esele, head of portfolio management at Commonwealth Financial Network. “When these volatile components are removed, the PPI appears to have peaked and is beginning to reverse, a telltale sign that the economy is moving into late-cycle territory.”
Overall, goods prices rose 2.4 percent last month, the sixth straight increase and the biggest contributor to headline inflation. Nearly 90% of June’s increase in services was due to a 10% jump in final energy prices, including a staggering 18.% increase in gasoline prices, according to the Labor Department.
Meanwhile, the services index rose 0.4 percent in June, with increases in transportation and warehousing services accounting for about two-thirds of the gain.
The increase in wholesale prices comes after a separate Labor Department report released on Wednesday showed that consumer price index rose 9.1% in June from a year ago, beating market expectations. This marked the fastest rate of inflation since December 1981.
A man wearing a mask walks past the US Federal Reserve Building in Washington, the United States, on April 29, 2020. ((Xinhua/Liu Jie via Getty Images) / Getty Images)
Runaway inflation has become a major political issue for President Biden ahead of November’s midterm elections, in which Democrats are expected to lose their already slim majorities. Polls show that Americans see inflation as the biggest problem facing the country — and that many households blame Biden for the price spike.
The back-to-back bad reports are likely to solidify a series of aggressive rate hikes by the Federal Reserve as policymakers race to catch up with rampant inflation. The US central bank already raised its benchmark interest rate by 75 basis points last month for the first time since 1994, and confirmed that a similar increase is on the way in July.
With inflation even hotter than economists expected in June, Wall Street is now raising the odds for a mega-sized 100 basis point hike in July. About 83% of traders now estimate the chances of a 100 basis point hike later this month, according to CME Group’s FedWatch tool, which tracks trade.
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“The probability of a 100 basis point hike by the Fed at the end of July increased significantly after the release of the two price indices,” Esele said. “The Bank of Canada raised interest rates by 1% on Wednesday, the first G7 country to make such a move to curb inflation this cycle, and the US is likely to follow suit.”
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