By Swann Collins, investor, writer and consultant in international affairs – Eurasia Business News, July 13, 2022

U.S. annual inflation hit record 9.1% in June, after record of 8.6% in May, 8.3% in April, 8.5% in March and 7.9% in February. Continuing to accelerate higher, U.S. inflation is out of control.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.3 percent in June on a seasonally adjusted basis after rising 1.0 percent in May, the U.S. Bureau of Labor Statistics reported 20 minutes ago. Over the last 12 months, the all items index increased 9.1 percent before seasonal adjustment.

Most economists and analysts had expected that inflation had peaked in March at 8.5% and that it would decrease in the following months. They were completely wrong. This continuing increase is a serious problem for the U.S. economy. The middle and working class families are financially decimated right now. Democrats will be in great difficulty in the coming midterms election next november.

Such a level of inflation was never seen in the United States since 1981 and the dynamic has been here for months.

U.S. stock futures turned negative after the release of the data. Investors are closely watching the data for clues about the outlook for central-bank policy and the wider economy.

Such an inflation will keep Fed officials on an aggressive policy course to rein in demand, and adds pressure to President Joe Biden and Democrats whose policies, based on Keneysian economics, are a complete failure so far.

The increase was broad-based, with the indexes for gasoline, shelter, and food being the largest contributors. The energy index rose 7.5 percent over the month and contributed nearly half of the all items increase, with the gasoline index rising 11.2 percent and the other major component indexes also rising. The food index rose 1.0 percent in June, as did the food at home index.

The index for all items less food and energy rose 0.7 percent in June, after increasing 0.6 percent in the preceding two months. While almost all major component indexes increased over the month, the largest contributors were the indexes for shelter, used cars and trucks, medical care, motor vehicle insurance, and new vehicles. The indexes for motor vehicle repair, apparel, household furnishings and operations, and recreation also increased in June. Among the few major component indexes to decline in June were lodging away from home and airline fares.

The all items index increased 9.1 percent for the 12 months ending June, the largest 12-month increase since the period ending November 1981. The all items less food and energy index rose 5.9 percent over the last 12 months. The energy index rose 41.6 percent over the last year, the largest 12-month increase since the period ending April 1980. The food index increased 10.4 percent for the 12-months ending June, the largest 12-month increase since the period ending February 1981.

Food prices increase

The food index increased 1.0 percent in June following a 1.2-percent increase the prior month. The index for food at home also rose 1.0 percent in June, the sixth consecutive increase of at least 1.0 percent in that index. Five of the six major grocery store food group indexes rose in June. The index for other food at home rose 1.8 percent, with sharp increases in the indexes for butter and for sugar and sweets. The index for cereals and bakery products increased 2.1 percent in June, with the index for flour rising 5.3 percent. The dairy and related products index rose 1.7 percent over the month, following a 2.9-percent increase in May.

The fruits and vegetables index increased 0.7 percent in June after rising 0.6 percent in May. The index for nonalcoholic beverages rose 0.8 percent over the month. The only major grocery group index to decline in June was the index for meats, poultry, fish, and eggs which fell 0.4 percent over the month as the indexes for beef and pork declined.

The food away from home index rose 0.9 percent in June after rising 0.7 percent in May. The index for full service meals rose 0.8 percent over the month. The index for limited service meals increased 0.7 percent in June, as it did in May.

The food at home index rose 12.2 percent over the last 12 months, the largest 12-month increase since the period ending April 1979. All six major grocery store food group indexes increased over the span, with five of the six rising more than 10 percent.

The index for other food at home increased the most, rising 14.4 percent, with the index for butter and margarine increasing 26.3 percent. The remaining groups saw increases ranging from 8.1 percent (fruits and vegetables) to 13.8 percent (cereals and bakery products).

The index for food away from home rose 7.7 percent over the last year, the largest 12-month change since the period ending November 1981. The index for full service meals rose 8.9 percent over the last 12 months, and the index for limited service meals rose 7.4 percent over the last year.

Energy prices are booming

The energy index increased 7.5 percent in June after rising 3.9 percent in May. The gasoline index rose 11.2 percent in June after increasing 4.1 percent in May. (Before seasonal adjustment, gasoline prices rose 9.9 percent in June.) The index for natural gas rose 8.2 percent in June, the largest monthly increase since October 2005. The electricity index also increased in June, rising 1.7 percent.

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The energy index rose 41.6 percent over the past 12 months. The gasoline index increased 59.9 percent over the span, the largest 12-month increase in that index since March 1980. The index for electricity rose 13.7 percent, the largest 12-month increase since the period ending April 2006. The index for natural gas increased 38.4 percent over the last 12 months, the largest such increase since the period ending October 2005.

All items less food and energy

The index for all items less food and energy rose 0.7 percent in June. The shelter index increased 0.6 percent in June, as it did in May. The rent index rose 0.8 percent over the month, the largest monthly increase since April 1986, and the owners’ equivalent rent index rose 0.7 percent. The index for lodging away from home fell 2.8 percent in June after a string of increases in recent months. The index for used cars and trucks rose 1.6 percent in June after rising 1.8 percent in May. The motor vehicle insurance index increased 1.9 percent over the month, the sixth consecutive increase in that index.

The index for new vehicles rose in June, increasing 0.7 percent after rising 1.0 percent in May. The motor vehicle maintenance and repair index increased 2.0 percent in June, its largest increase since September 1974.

The medical care index rose 0.7 percent in June, with all medical care component indexes increasing over the month. The index for dental services increased 1.9 percent in June, the largest monthly change ever recorded for that series, which dates to 1995. The hospital services index increased 0.3 percent over the month, while the physicians’ services index rose 0.1 percent. The index for prescription drugs also increased 0.1 percent in June.

The apparel index rose 0.8 percent in June, following a 0.7-percent increase in May. The index for household furnishings and operations continued to rise, increasing 0.4 percent over the month. The recreation index rose 0.3 percent in June. Other indexes that increased in June include education (+0.4 percent), personal care (+0.4 percent), alcoholic beverages (+0.4 percent), and tobacco (+0.6 percent).

Among the limited number of indexes which declined in June was the index for airline fares, which fell 1.8 percent in June after rising sharply in recent months. The communication index was unchanged over the month.

The index for all items less food and energy rose 5.9 percent over the past 12 months. The increase was broad-based, reflecting advances in almost all major component indexes. The shelter index rose 5.6 percent over the last year, the largest 12-month increase since the period ending February 1991. The index for household furnishings and operations increased 9.5 percent over the last 12 months. The index for new vehicles rose 11.4 percent and the index for used cars and trucks increased 7.1 percent over the year, while the index for airline fares rose 34.1 percent. Tourism industry will be severely hit this year.

The U.S. Fed fueled inflation

Since the start of the coronavirus crisis in February-March 2020, the U.S. Federal Reserve has injected the markets with 120 billion US dollars in liquidity each month, through the purchase of 80 billion treasury bills and 40 billion MBS. To briefly say it, the Fed has printed 120 billion of US dollars each month for more than 18 months. High inflation is a logical consequence.

On March 16, 2022, amid annual inflation in February hitting 7.9%, never seen since January 1982, the Federal Reserve started to admit its mistakes and approved a 0.25 percentage point rate hike, the first increase since December 2018. This brings the federal funds rate now into a range of 0.25%-0.5%.[1] The move will correspond with a hike in the prime rate and immediately send financing costs higher for many forms of consumer borrowing and credit.

By raising its rates, the Fed forces the banks to increase the rates they offer to their customers for the financing of a house, a car or any consumer good.

In a rare move, the U.S. Federal Reserve approved a 0.50% interest rate increase on May 4 and announced plans to shrink its $9 trillion asset portfolio starting next month, in an effort to tackle a 8.5% inflation in annual terms, a record since January 1982.

The moves, announced after a two-day policy meeting of central bankers Wednesday, will raise the Fed’s benchmark federal-funds rate to a target range between 0.75% and 1%.

Fed officials indicated the rate increases will come with slower economic growth this year. The Federal Open Market Committee also projected roughly six more rate hikes in 2022, along with slower growth and higher inflation.

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As high inflation is accelerating and the geopolitical tensions have been growing in Europe and Asia, already hit by high inflation and political tensions, gold prices have rallied buyers. It is time to buy gold, silver and stockpile food and medicines. The coming months will be tough for modest families and the middle-class.

Next publication of CPI

The Consumer Price Index for July 2022 is scheduled to be released on Wednesday, August 10, 2022 at 8:30 a.m. (ET).

The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services. The CPI reflects spending patterns for each of two population groups: all urban consumers and urban wage earners and clerical workers.

High inflation also hit Europe. The euro area annual inflation is expected to be 8.1% in May 2022, up from 7.4% in April according to a flash estimate released on May 31 by Eurostat, the EU statistical office. With European inflation hitting record 8.6% in June, up from 8.1% in May, the only way to secure wealth seems to be investing in gold and silver. Investing in a forest and farming lands are also solutions to secure wealth and standard of living.

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© Copyright 2022 – Swann Collins, investor, writer and consultant in international affairs.