As rapid inflation fuels growing recession fears, new data showed consumer prices rose 9.1% in the 12 months ending in June, hitting a worse-than-expected 40-year high after an unprecedented surge in gas prices.
Overall prices rose 1.3% from May—surpassing the 1.1% economists were expecting and much higher than the previous month’s increase of 1%, according to data released by the Labor Department on Wednesday.
The unexpected jump marks the largest 12-month increase since the period ending November 1981, according to the release, and comes after prices in May unexpectedly returned to a 40-year high.
The worse-than-expected increase was the result of increases across categories, with gasoline, shelter and food being the largest contributors, the government said.
The energy index rose 7.5% over the month and contributed nearly half of the overall increase, driven higher by the gasoline index, which rose 11.2%.
Core inflation, which excludes volatile food and energy prices, rose 0.7% against an expectation of 0.5%; shelter prices rose at the fastest pace in 31 years while rent prices climbed at the largest rate in more than 35 years.
Stocks plunged immediately after the report, with the Dow Jones Industrial Average paring pre-market gains and trading down 308 points by 8:45 a.m. ET.
Rising energy prices have helped push inflation readings up to the highest level in decades during the pandemic, and stocks have struggled in recent months as Federal Reserve officials work to combat the surge by unwinding the central bank’s pandemic-era stimulus measures. After rising 27% in 2021, the benchmark S&P 500 has tumbled 20% this year. Meanwhile, oil prices surged back toward yearly highs of more than $120 per barrel in June amid supply concerns over the summer travel season—adding to those spurred by sanctions against Russia, one of the world’s top oil-producing countries. Prices have since fallen back below $100 per barrel this month, but experts aren’t so sure how long the reprieve will last.
WHAT TO WATCH FOR
In a note to clients Sunday night, Goldman economists said they expect consumer prices to rise more quickly this summer as transportation and health insurance costs continue to surge, pushing core inflation from 5.9% in June to 6.3% in September. Some experts believe the price surge could last for years. “Consumers may have to live in a world where inflation consistently runs hotter than the previous decade,” LPL Financial chief economist Jeffrey Roach said in a note this month, citing concerns from central bankers like the European Union’s Christine Lagarde, who’s warnedthere are “growing signs”—including the ongoing war in Ukraine—that suggest “supply shocks hitting the economy could linger” beyond 2024.
By Jonathan Ponciano, Forbes Staff