The Fed is expected to hike interest rates again soon, but what is the impact on shoppers?

A 40-year high in gas, food, and rent costs was recorded in June, likely confirming the Fed’s plans for another rate hike in August.

Consumer price index data released by the Labor Department showed prices increased 9.1% from a year earlier, exceeding an annual rate of 8.6% last month for the first time since November 1981. Inflation was estimated to rise to 8.8% by economists surveyed by Bloomberg.

Compared with a 1% rise in May, consumer prices increased 1.3% on a monthly basis, the largest such jump since 2005.

In a research note, Pantheon Macroeconomics chief economist Ian Shepherdson said, “Ouch.”.””Fortunately, this is the last big increase”

In a report with other economists, he noted June likely marked the peak of inflation, although a similar prediction made in the spring was later proven to be inaccurate.

The reaction of the stock market

As part of an aggressive campaign to curb inflation, the Federal Reserve plans to raise its key interest rate by a substantial three-quarters of a percentage point in two weeks.

Already dour investors were disappointed by the inflation figure and the probability of a significant rate hike. On the Dow Jones Industrial Average, 30 points, or 0.70 percent, were lost, while 17 points, or 0.50 percent, were lost in the broad S&P 500 stock index.

Why is inflation occurring?

Fuel prices again accounted for the bulk of June’s increase, increasing 11.2% from a month ago and 59.9% from a year ago. A month ago, regular unleaded averaged $5. The good news is it is down to $4.65 on Tuesday.

Since May, grocery prices have risen by 1%, and over the past 12 months they have increased by 12.2%. In part, the rise in gas prices is attributed to Russia’s war in Ukraine, which has caused disruptions in global oil, wheat, corn, and other commodity supplies.

There was a 2.5% increase in cereal prices in June when compared to a month earlier and an increase of 14.2% over a year earlier. Monthly bread sales increased by 1.6% and yearly sales increased by 10.8%. Annual chicken costs increased by 17.3% and 1.5% respectively.

It was encouraging to see some signs of progress. It was the second consecutive month in which bacon prices declined by a large percentage. The price of beef and veal decreased by 2.3% as well.

Can food prices be reduced?

Despite recession fears and ebbing consumer demand, commodity prices have plunged recently. Gas prices have already dropped and food prices are expected to increase more moderately within months, according to Sam Bullard, an economist at Wells Fargo.

As a result, Pooja Sriram, an economist at Barclays, believes grocery prices will remain high throughout the year as farmers incur higher costs for fertilizer. Fertilizer exports from Russia have increased due to the Ukraine war, as has its primary ingredient, natural gas.

According to the core price index, prices increased 0.7% in June after increasing 0.6% in May. From 6% to 5.9%, the annual index rose for the third consecutive year.

What does rent inflation mean?

During the pandemic, people who hunkered down with family members began moving into their own apartments, leading to a rise in rent of 0.8% monthly and 5.8% over the past year.

Some positive developments were reported for summer travelers. In spite of surging demand, airline fares and hotel rates fell 1.8% and 2.8%, respectively, but are still up 34.1% and 10% from last year.

Over the next few months, inflation is likely to soften. Apart from falling commodity prices, pandemic-induced supply chain problems are subsiding, wage increases may be moderating, and retailers are offering big discounts.

The pandemic is gradually easing now, so consumers are increasingly investing in services rather than goods.

What are the risks of a recession based on the report?

Recession risks are increased to some extent by the inflation figure. With rising inflation, consumers cut back on spending, which accounts for 70% of economic activity, and interest rates are likely to rise more, which would hurt borrowing. According to the bank, the report indicates that we will enter a recession in the second half of the year.

Can this inflation be compared to World War II’s worst?

It is painful for millions of Americans that inflation has hit a new four-decade high. As a result of the end of the war, inflation in the U.S. spiked to 19.7% in March 1947. An official White House blog explains that the spike is the result of the end of the war, which ended price controls, reduced supply, and sparked pent-up demand.

According to Joe Biden, inflation is “unacceptably high.”

In addition, he said, “it affects almost every country in the world.”. For Americans, it is not comforting to learn that inflation is also high in Europe and in many other countries as well. This reminds us that all major economies face a COVID related challenge, exacerbated by Putin’s unjustified aggression.”

As an example, inflation reached nearly 80% in Turkey in June, and in the Euro zone, a group of 19 European countries sharing the euro, it rose to 8.6%, the highest rate in the history of the currency.

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