June inflation soared 9.1%, a new 40-year high, amid high gas prices

Inflation soared in June, continuing to climb at the fastest pace in 40 years across many sectors of the economy, driven in large part by higher energy prices.

The blistering consumer price index was 9.1% higher in June than it was compared to a year ago, and 1.3% higher than it was in May, according to a report released Wednesday by the Bureau of Labor Statistics, revealing scant signs of progress in the fight against inflation. The last time inflation reached over 9% was November 1981.

The June data showed broad increases in the prices of food, energy and housing, confirming that inflation is now the nation’s most challenging economic problem, while raising new fears that other sources of strength in the economy — like the labor market and consumer spending — won’t be enough to fend off another recession.

Driving the stunning jump was the energy index, which rose 7.5% compared to May and contributed nearly half of the overall increase in inflation. That index includes prices for fuel, oil, gasoline and electricity, and it’s up 41.6% for the year, the largest 12-month increase since April 1980.

Yet prices also increased in lots of other categories that aren’t considered as volatile or energy-dependent, including housing, medical care and apparel.

There was not a drop of good news in this report, said Michael Strain, director of economic policy studies at the American Enterprise Institute. “I had an emotional reaction to this report, and I was trying to think about the last time I had an emotional reaction to an economic data release, and I think you have to go to back to the financial crisis. Dismay. Frustration.”

What’s clear is that inflation is not letting up. The upward momentum is compounding pressure on the Federal Reserve and White House to ratchet up their response to rising prices. They also must convince the American public that they can successfully slow the economy without causing the unemployment rate to go up or the economy to contract altogether. Financial markets sank on the news.

Inflation is our most pressing economic challenge. It is hitting almost every country in the world . . . Tackling inflation is my top priority — we need to make more progress, more quickly, in getting price increases under control, President Joe Biden said in a statement.

Few aspects of daily life have been left untouched by inflation. The food index rose 1% in June and is up 10.4% compared with the previous year, the largest 12-month increase since February 1981. The price of chicken has ballooned 19% in the past year, the biggest increase ever.

Gas prices were up 11.2% in June, underscoring the economic toll Russia’s invasion of Ukraine has had on global energy markets. There’s hope that upcoming inflation data will ease down a bit, as energy and gas prices have fallen consistently in the past month. The national average for a gallon of gas ticked down to $4.63 on Wednesday, according to AAA.

Rent also rose 0.8% in June compared with the month before, as the cost of simply keeping a roof overhead is becoming more and more out of reach for families nationwide.

It’s important that policymakers address the public, said Joe Brusuelas, chief economist at RSM. “At this point, we’re talking about food, gasoline and housing. That does not make for a happy household.”

Even “core inflation,” a data point closely studied by economists because it strips out more volatile categories such as food and energy, was high in June. That’s especially worrisome because officials need to see core inflation turn around before they have any assurance that prices overall will come down, too.

Officials at the Federal Reserve and White House want policies intended to crack down on inflation to yield more results. The Fed may need to work more forcefully to slow the economy by raising interest rates, which the central bank has done three times this year already. Higher interest rates are the main tool to reverse inflation by making a whole host of lending — from mortgage rates to auto loans and borrowing for businesses — more expensive, which slows demand and cools off the economy. But if interest rates go too high, they can cause even more economic pain, triggering large numbers of job losses.

The June data covers a particularly bleak period: Consumer sentiment sank last month to a low not seen since the 1980 recession, according to a closely watched University of Michigan survey. That decline heightened concerns that the Fed is losing the confidence of the public and financial markets — a major challenge in its fight against inflation.

The offenders, again, were all too familiar to consumers, those being gasoline, food, and shelter. With their sentiment at the lowest level in years, consumers have a right to be highly distraught, Mark Hamrick, senior economic analyst at Bankrate, wrote in an analyst note. “They’re facing a combination of high and sustained inflation robbing them of purchasing power.”

In Louisville, Stephanie Lott, 32, stretches every bit of the $18 an hour she makes as an accounts payable clerk. Gas is $3.76 per gallon. Monthly rent for her bedroom is $600. Lott had enrolled in graduate school to become a teacher, but she couldn’t afford to finish her degree.

Lott sends whatever money she can back home to her dad in Mississippi. She said he’s lucky by some measures: he owns his mobile home and gets insulin for his diabetes covered by Medicare and Medicaid. But everything else must be covered by about $900 a month in social security, and now, his late wife’s life insurance policy. Inflation is rapidly eroding his fixed income.

It’s paying for gas to get to the doctor. It’s getting groceries, Lott said. “With my help, he’s able to do it, but barely. And we don’t know how long the money that dad got from mom’s life insurance policy is going to last.”

Financial markets have been down sharply this year, as investors react to the Federal Reserve’s moves tightening monetary policy. The June inflation report set off fears on Wall Street that the Federal Reserve would have to move more aggressively to get prices under control in the months to come.

Financial markets dropped, with the Dow Jones industrial average closing down .67%, the S&P 500 down .45%, and the tech-heavy Nasdaq index closing down .15%.

Fighting inflation is mostly the Fed’s job, but the Biden administration has also struggled to lower prices for American families. High inflation has clobbered Biden’s popularity, and last month’s run-up in gas prices to a nationwide average topping $5 a gallon made more people feel even gloomier about the economy.

The higher-than-expected inflation data comes as Democrats are vying to reach agreements on their long-stalled economic-spending legislation. Jared Bernstein, a member of the White House’s Council of Economic Advisers, told The Washington Post that such high inflation underscores the need for Congress to enact laws that lower costs for prescription drugs, utility bills and would increase the supply of affordable housing.

Inflation reports like this one should get every politician out and pushing in the same direction, Bernstein said. “Democrats are already there. Republicans need to join.”

But any further spending efforts have been met with staunch rejection by Republicans. For more than a year, Republicans have hammered Democrats for overspending on covid relief efforts, and the GOP is poised to make inflation a major focus of its midterm campaigns this year.

Working families are struggling to make ends meet as they continue to face the worst inflation in more than 40 years, Sen. John Barrasso, R-Wyo., said in a statement. “The price of groceries, gas, rent and utilities are skyrocketing. All while paychecks aren’t keeping up. . . . Working families in Wyoming cannot afford to pay the huge price of President Biden’s failed economic agenda.”

Still, there are also signs of progress in the broader economy. Higher interest rates are cooling the housing market, as prospective buyers back away from higher mortgage payments, and new home construction slows. There are reports that those moves could be trickling down into lower sales prices in some markets.

The latest jobs report also showed the U.S. labor market maintained its torrid pace in June, adding 372,000 new positions and keeping the unemployment rate at a low 3.6%. Corporate earnings and consumer spending have remained resilient. Bernstein, the White House economic adviser, said the last jobs report was a key counterargument against the idea that the economy was headed for a recession.

In Houston, Three Brothers Bakery has been open for 73 years, most recently surviving a fire, Hurricane Harvey and the 2021 Texas freeze. The latest test is high inflation, which has sent prices for key ingredients like honey and unsalted butter soaring. Eggs are up more than 300%, compared with last year. President and co-owner Janice Jucker said she expects that the war in Ukraine could send prices for flour even higher by the holidays, the busiest time of the year.

Even as recession fears grow elsewhere in the economy, Jucker said what matters to her is how people feel about their ability to buy goodies for their loved ones. “It’s when things aren’t great, that’s what we worry about,” she said. Jucker doesn’t know whether people will begin to decide they just can’t swing $4 for one of the bakery’s beloved gingerbread men.

It’s still something people come in and they get all the time, and I worry at some point they may say, ‘no,’ Jucker said.

The Fed hiked interest rates by three-quarters of percentage point in June, marking its sharpest increase since 2000. In the past few weeks, several Fed leaders have suggested that another hike of three-quarters of a percentage point may be necessary at their next policy meeting later this month. It’s unclear whether the June data will push the Fed in an even stronger direction. Asked about the possibility of a full-percentage-point hike, Atlanta Fed President Raphael Bostic told reporters Wednesday that “everything is in play.” (Bostic does not have a vote on the Fed’s policy committee this year.)

The Fed’s argument is that the economy, though burdened by high inflation, is still solid enough to withstand higher interest rates.

The U.S. economy for now is strong. Spending is strong. Consumers are in good shape. Businesses are in good shape, Fed Chair Jerome Powell told the Senate Banking Committee on June 22. “Monetary policy is famously a blunt tool. And there’s risk that weaker outcomes are certainly possible. But they’re not our intent.”