Even as the Federal Reserve is trying to rapidly slow down inflation, the Consumer Price Index (CPI) showed continued increases in inflation for June.
According to the latest data from the U.S. Bureau of Labor Statistics, the CPI rose 1.3 percent in June on a seasonally adjusted basis. Year-over-year, the index rose 9.1 percent, the largest annual increase since November 1981.
Energy, food and shelter cost increases were among the largest contributors to this increase in CPI. Shelter inflation saw the largest year-over-year increase in over 30 years, reaching 5.6 percent. Mark Fleming, chief economist at First American Financial, said shelter data is one of the biggest challenges to addressing inflation.
“One headwind for the Fed’s fight against inflation, shelter inflation, is delayed up to six to twelve months,” Fleming said. “Rapid growth in rent expense over the last year is only now beginning to hit the headline CPI figure, which means there’s more upward pressure to come.”
This CPI report is likely to keep the Fed in a more aggressive stance going into the next Federal Open Market Committee (FOMC) meeting later this month, when it is expected to increase the benchmark Federal Funds Rate by another 75 basis points.
“The accelerating inflation means there’s a lot more work for the Federal Reserve to do,” Fleming said. “Another 75-point increase in the federal funds rate is almost assured.”
Last week, the Bank of Canada made the shocking decision to increase its rate by 100 basis point which has led to some experts speculating that a similar one percentage point increase may be coming from the Fed soon.
“You have to put 100 on the table for July,” said Andrew Hollenhorst, Citigroup chief U.S. economist. “Everybody should be quite cautious about calling peak inflation -- a few months ago the peak was supposed to be 8.3 percent.”
Some members of the Fed FOMC have given clear indication that the full point increase is not summarily off the table.
“Everything is in play,” Atlanta Fed President Raphael Bostic told reporters following the CPI announcement.
Cleveland Fed President Loretta Mester, in an interview with Bloomberg Television, declined to say if she favored a full percentage point increase, but did state that there was “no reason” for raising rates less than 75 basis points.
“We at the Fed have to be very deliberate and intentional about continuing on this path of raising our interest rate until we get and see convincing evidence that inflation has turned a corner,” Mester said.