Inflation Hit 9.1 Percent in June, Highest Rate in Four Decades

WASHINGTON — Surging prices for gas, food and rent catapulted American inflation to a new four-decade peak in June, further pressuring households and likely sealing the case for another large interest rate hike by the Federal Reserve, with higher borrowing costs to follow.Consumer prices soared 9.1 percent compared with a year earlier, the government said Wednesday, the biggest 12-month increase since 1981, and up from an 8.6 percent jump in May. On a monthly basis, prices rose 1.3 percent from May to June, another substantial increase, after prices had jumped 1 percent from April to May.The ongoing price increases underscore the brutal impact that inflation has inflicted on many families, with the costs of necessities, in particular, rising much faster than average incomes. Lower-income and Black and Hispanic Americans have been hit especially hard, because a disproportionate share of their income goes toward such essentials as housing, transportation and food.Some economists have held out hope that inflation might be reaching or nearing a short-term peak. Gas prices, for example, have fallen from the eye-watering $5 a gallon reached in mid-June to an average of $4.66 nationwide as of Tuesday — still far higher than a year ago but a drop that could help slow inflation for July and possibly August.In addition, shipping costs and commodity prices have begun to fall. Pay increases have slowed. And surveys show that Americans’ expectations for inflation over the long run have eased — a trend that often points to more moderate price increases over time.Yet for now, the relentless spike in inflation has caused a steep drop in consumers’ confidence in the economy, sent President Biden’s approval ratings tumbling and posed a major political threat to Democrats in the November congressional elections.Forty percent of adults said in a June AP-NORC poll that they thought tackling inflation should be a top government priority this year, up from just 14 percent who said so in December.The inflation jump will likely cement the case at the Federal Reserve for another large, 0.75 percentage point increase in its benchmark short-term interest rate, which is currently in a range of 1.5 percent to 1.75 percent. At its rate-setting meeting last month, Fed officials implemented a 0.75 percentage point hike, the largest in nearly three decades.The persistence of inflation has unnerved the Fed chairman, Jerome Powell, and other Fed officials, who are engaged in the fastest series of rate hikes since the late 1980s in an effort to bring it to heel.Mr. Powell has emphasized that the central bank wants to see “compelling evidence” that inflation is slowing before dialing back its rate hikes. Such evidence would need to be a “series of declining monthly inflation readings,” he said at a press conference last month.Some economists worry that the Fed’s desire to quell inflation could cause it to hike rates too quickly, even as the economy, by some measures, is slowing. Much higher borrowing costs could tip into recession next year.Consumers have started to pull back a bit on spending, home sales are falling as mortgage rates rise, and factory output slipped in May.The Fed would like to see weaker growth, which should help bring down inflation. Healthy job gains in June point to an economy that is still expanding, with little sign of an imminent recession.

Inflation Hit 9.1 Percent in June, Highest Rate in Four Decades

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