U.S. Inflation Hits New 4-Decade High of 9.1% in June

By Geoffrey Smith 

Investing.com --  Consumer inflation in the U.S. leaped to a new four-decade high of 9.1% in June, exceeding analysts' forecasts and piling further pressure on the Federal Reserve to bring it down with faster interest rate rises.

The Bureau of Labor Statistics said prices rose 1.3% on the month alone, which was itself the biggest monthly gain since 2005. That was due largely to big increases in prices for food, gasoline, and shelter.

Stripping out the more volatile areas of the consumer price index, core prices rose 0.7% from May, their biggest increase in a year. The BLS said the rise was "broad-based," even though food, gasoline, and housing accounted for half of the monthly increase.

"Surprisingly there was a lot more goods inflation than anyone (including me) would have expected a few months ago," said Jason Furman, a senior fellow with the Peterson Institute in Washington, DC, said via Twitter. He noted that core goods inflation was higher than core services inflation for the second straight month. Eye-catchingly, prices for used cars and trucks, which had fallen all through the spring, rose by 1.6%, after a 1.8% increase in May.

The only bright spot in the report was that the annual rate for core CPI inflation edged down to 5.9% from 6.0%, although even this fell less than expected.

There's "no sugar-coating this report," said Julia Coronado, a former Fed economist and founder of the consultancy MacroPolicy Perspectives, via Twitter.

While the exceptionally strong annual inflation rate is largely affected by base effects from developments 12 months ago, the monthly rate is still strongly suggestive of broad, ongoing price pressures in the economy.

U.S. stock futures slumped and bond yields rose on the news, which pointed to a worse and more persistent problem with inflation than previously assumed. It's the latest in a succession of negative surprises from the consumer price index, which Wall Street economists have repeatedly underestimated in the last year.

By 8:50 AM ET (1250 GMT), S&P 500 futures had fallen 76 points from immediately before the release to be down 1.5% from Tuesday's close. Benchmark 10-Year Treasury bond yields surged by eight basis points to trade back above 3% at 3.04%. The 2-Year note yield, more sensitive to expectations of Federal Reserve actions, rose 12 basis points to 3.17%, its highest in three weeks.

The news also hit other asset classes, pushing the euro below parity with the dollar for the first time in 20 years. The broader Dollar Index, which tracks the greenback against a basket of advanced economy currencies, rose 0.3% to 108.41, testing the 20-year high that it hit on Tuesday.

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