In June 2022, the prices of goods such as gas, fuel, food and other commodities have crossed 40-year record of inflation. The inflation rate is likely going to be very high in the month of June 2022. Recent government reports show marked increase in prices of goods and inflation rate is as high as 8% in the same period last year. This increase is from 8.6% and it is biggest yearly rise in inflation since December 1981.
Possibility for more increase in Inflation
At that level of inflation, it is very possible that the Federal Reserve will decide to execute another significant hike in interest rates at its next meeting, which will take place in two weeks. The purpose of raising interest rates is to reduce the amount of money spent by businesses and consumers, as well as to limit the rate of inflation.
Such significant price hikes would also bring to light the devastating effect that inflation has had on the financial situations of a great number of families, as the cost of basic needs has skyrocketed at a rate that is faster than salaries have increased. Families in the United States with lower incomes, as well as families of colour of Black and Hispanic descent, have fared worse since a bigger amount of their budgets are spent on necessities such as food and gas.
Decrease in price of Gasoline in June
However, as of Tuesday, the national average price of a gallon of gasoline was $4.66, which is a significant decrease from the staggering $5 a gallon that was reached in the middle of June. Although this is significantly more than it was a year ago, it does indicate that there is a chance that inflation will be significantly lower this month and possibly in August as well.
Proper Addressing in needed urgently for Inflation
The fact is, however, that rising prices have led to a significant drop in consumers’ confidence in the economy, have contributed to President Joe Biden’s falling approval ratings, and pose significant political dangers for congressional Democrats this autumn. In a poll conducted in June by the Associated Press and the National Opinion Research Center, forty percent of individuals in the United States stated that addressing inflation should be a key priority for the government this year. This is an increase from just fourteen percent in December.
As the pandemic began to wind down a year ago, Americans rapidly increased their spending, initially splurging on furniture, exercise equipment, and other home items. In recent months, however, they have shifted their focus more toward travelling, dining out, and attending movies and concerts. The surging demand, which was helped in part by the government’s stimulus checks, swamped supply chains, which resulted in skyrocketing prices.
1.1% increase in prices in June compared to May 2022
According to FactSet’s findings, economists anticipate that the data that will be released on Wednesday will indicate that prices increased by 1.1 percent in June compared to May. According to the estimations of some analysts, as much as half of that gain could be attributed to increased costs at the pump.
Prices most likely increased by 0.6 percent for the third consecutive month in June, and they increased by 5.7 percent from the same time a year earlier. This is excluding the volatile categories of food and energy.
Inflation strengthens the Federal Reserve
Monthly gains of that scale would certainly strengthen the argument at the Federal Reserve for another significant increase of 0.75 percentage points in its benchmark short-term interest rate, which is now within a band that goes from 1.5 percent to 1.75 percent. The Federal Reserve raised interest rates by 0.75 percentage points at its meeting to determine rates a month ago, making it the highest increase in rates in over three decades.
Fed Chair Jerome Powell and other Fed officials have become alarmed by the continuation of inflation. As a result, the Fed is currently engaged in the most rapid series of rate hikes since the late 1980s in a bid to bring inflation under control.
Powell has highlighted that the central bank needs to see “compelling evidence” that inflation is falling before scaling back its rate hikes. This evidence is required before the Fed will consider reducing its rate hikes. In order to qualify as such evidence, he stated at a news conference one month ago that there would need to be “a string of declining monthly inflation figures.” Some economists are concerned that the Federal Reserve’s determination to curb inflation could prompt it to raise interest rates too soon, even if the economy is showing signs of slowing down according to some metrics. The significantly increased cost of borrowing might push the economy into recession the next year.
Consumers have shown some signs of slowing down their spending, the decline in home sales can be attributed to the increase in mortgage rates, and manufacturing output was lower in May.
The Federal Reserve would prefer to see slower growth, as this should assist in bringing inflation down. The robust job gains seen in June signal to an economy that is still growing, with little evidence to suggest that a recession is on the horizon.
Inflation will begin to reduce later on in this year
It is likely that inflation will begin to reduce later on in this year; however, the exact amount by which it will do so is unknown. Oil prices dropped on Tuesday to almost $96 per barrel, and other commodities, including metals such as copper, have also become cheaper. This is primarily due to concerns regarding a recession in the United States and Europe.
The prices of transporting international freight have decreased, and as a result, there are fewer ships backed up in the United States’ largest port, which is located between Los Angeles and Long Beach. According to Omair Sharif, the founder of Inflation Insights, wholesale gasoline prices have dropped to approximately $3.40 per gallon, which predicts that retail prices could decrease to as low as $4.20 by the end of August. Used automobile prices are reducing at a wholesale level as well, which indicates that consumer pricing will follow suit in the coming months.
Despite this, the cost of many different things continues to go up. The rise in the number of people moving out on their own and the accompanying rise in median household income has led to an increase in the cost of renting an apartment. According to data provided by the real estate agency Redfin, the typical monthly rent for newly signed leases has risen by 14 percent over the course of the previous year, reaching an average of $2,016.
Due to the fact that it takes into account all rentals, including those that are already being paid, the government’s inflation index for rents shows a slower rate of rise. Economists, on the other hand, anticipate that the rising cost of new leases will cause the government’s inflation measure to rise in the months to come.
Inflation rate has increased globally
The rate of inflation has also risen sharply in other countries. In May, it hit 9.1 percent in the United Kingdom, marking the highest level in four decades. The majority of the driving force behind this was the increased cost of gas and food. It reached 8.1 percent that month from the previous year in the 19 European countries that use the euro currency, which was the highest rate recorded in the history of the series, which began in 1997.