Prices rose 6.8% in the year to June, according to the Federal Reserve’s preferred inflation index, and even the index that excludes food and fuel rose significantly on a monthly basis.
inflation as measured by Personal Consumption Expenditure Index That’s a slightly larger increase than the 4.7% increase economists had expected in a Bloomberg survey.
These data are likely to put central banks on track to raise interest rates further as they try to cool the fastest inflation in decades. It was – three-quarters of a percentage point – trying to slow the economy by making borrowing more expensive.
Another report showed wages rising rapidly. The labor cost index Index wages and salaries indicators also rose, up 5.1% in the second quarter compared to the same period last year.
Most people don’t think wages are rising enough to keep up with rapidly rising prices, but wages are growing fast enough that inflation is the Fed’s annual target2. If labor costs are rising rapidly, businesses are unlikely to stop raising prices.
A combination of very rapid inflation and robust wage growth could keep the Fed in anti-inflation mode. Fed Chairman Jerome H. Powell said at a press conference this week that the Fed could raise interest rates again by three-quarters of a percentage point at its next meeting in September, but would not commit firmly to such a move. The Fed, which did not, is now nearly two months away from its next interest rate decision.
Headline inflation probably eased in July as gas prices plunged this month. However, it is not yet clear how long this shift will last, with central banks and consumers eyeing higher prices for a wide range of goods and services, not just fuel.
Inflation has been high for more than a year, and central banks are trying to keep demand down before it takes hold in the US economy. As consumers and businesses come to expect and accept sharp price increases, it may be difficult to quell them.
“I think it’s really important that we work on this now and get it done,” Mr. Powell said at a press conference this week, before adding, “We have a unique and unique obligation to provide price stability to the American people. It is unconditionally assigned,” he added. And use our tools to do just that. “