Numbers: Wholesale prices in the United States rose again in June, signaling that a recent surge in high inflation is expected to last at least through the summer.
The producer price index jumped 1% last month, the government said on Wednesday. Economists polled by the Wall Street Journal expected an increase of 0.6%.
The pace of wholesale inflation over the past 12 months rose to 7.3% from 6.6% in May. This is the highest level since the index’s overhaul in 2009, and possibly one of the highest readings since the early 1980s.
The inflation rate was still fairly low at the end of last year, but it spiked sharply in 2021 as a fully reopened economy sparked a wave of pent-up demand that businesses were unable to meet.
In other words, there is too much money for too little good – a classic definition of inflation.
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Big picture: The prices of many goods and services have increased rapidly this year. It’s clear. What is less certain is how quickly and to what extent inflation will slow down?
The Federal Reserve has been insisting for months that inflation will eventually come down to its 2% target, possibly by early next year. President Jerome Powell reiterated this view Wednesday in his testimony to Congress.
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Currently, consumer prices are increasing at an annual rate of 5.4%, the fastest increase since 2008.
There are signs that inflation will slow down.
Used car prices, which are a huge contributor to high inflation, are expected to start falling. And the cost of shelter and medical care, the two biggest expenses for most households, have been quite low this year.
It’s a little consolation for consumers, however. Gas prices have skyrocketed and the cost of food is also rising. This will weigh on household income for the foreseeable future.
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Key details: About 60% of the increase in wholesale inflation last month reflected the higher cost of services, a volatile category that can fluctuate greatly from month to month.
Yet the cost of most services has skyrocketed in recent months as vaccinated Americans come out to eat, travel, fly, rent vacation homes, and do everything they couldn’t do. during the pandemic. These prices had fallen at the start of the pandemic.
The cost of goods also rose sharply in the past month. Wholesale food prices rose 0.8% in June, on higher costs for beef, pork and chicken.
Higher prices for corn and other agricultural products are expected to drive up the cost of groceries in the coming months.
The cost of energy also jumped 2.1% in June.
The core wholesale inflation rate, meanwhile, rose 0.5% last month. The base rate is a less volatile measure that excludes food, energy and trade margins. It tends to give a more accurate picture of inflationary trends.
The increase in the base rate over the past 12 months edged up to 5.5% from 5.3%. This is the biggest breakthrough since the government started reporting in 2014.
The cost of raw and semi-finished products in the early stages of production also rose sharply again.
It should be borne in mind that higher wholesale prices do not always translate into higher inflation. Companies raise or lower prices for a number of reasons.
Market reaction: The Dow Jones Industrial Average DJIA,
and S&P 500 SPX,
were expected to open slightly higher in Wednesday’s trading. Stocks fell on Tuesday after the CPI showed another strong price increase in June.