America’s consumer price index for June soared 9.1% compared with a year earlier, marking yet another four-decade high and beating forecasts for an 8.8% increase
upside surprises in inflation occur with such frequency that surprise is probably the wrong word for them. So it was with
All the more important, therefore, to understand how persistent inflation will be. In this respect the most concerning part of the latest data was not the shocking headline figure, about half of which could be attributed to oil and gas prices, which surged early in June but have since ebbed. Rather, it was the change in core prices, stripping out volatile food and energy.
That reinforces investors’ belief that the Fed will stay on its hawkish path. A day before the inflation data, bond-market pricing implied that the Fed would raise interest rates by three-quarters of a percentage point at its next rate-setting meeting in late July, the second straight increase of that size. Following the data, bond pricing put the chances at roughly 50-50 that it would instead opt for a full percentage point increase.
The White House has tried to put as positive a gloss as possible on the figures. Prior to the data release, it drew attention to the recent decline in petrol prices. The national average is now about $4.63 per gallon, 5% lower than in June. With the price of crude down by even more, that does probably set the stage for a lower inflation reading in July.
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