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Soaring gas prices likely pushed US inflation to 40-year high | USA News®

By CHRISTOPHER RUGABER, AP Business Writer

WASHINGTON (AP) — U.S. inflation likely hit a new 40-year high in June, led by soaring prices for gasoline, more expensive food and rent, and cars and rooms. more expensive hotel.

A government report on Wednesday is expected to show consumer prices rose 8.8% in June from a year earlier, according to data provided by FactSet. That would be up from 8.6% in May and the biggest annual increase since December 1981.

Inflation at this level would make it very likely that the Federal Reserve will implement another large interest rate hike at its next meeting in two weeks. Higher rates aim to cool consumer and business spending and slow the economy and inflation.

Such large price increases would also highlight the stark impact of inflation on the finances of many families, as the costs of many basic necessities have soared at a faster rate than incomes. Lower-income Americans and Black and Hispanic families fared less well because a higher percentage of their budget is spent on items like gas and food.

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So far in July, however, gasoline prices have fallen from $5 a gallon hit in mid-June to a national average of $4.66 on Tuesday. That’s still much higher than a year ago, but the drop signals the potential for significantly lower inflation this month and possibly August.

Still, rising prices have caused a sharp drop in consumer confidence in the economy, dented President Joe Biden’s approval ratings and poses major political risks for congressional Democrats this fall. Forty percent of American adults said tackling inflation should be a top government priority this year in a June AP-NORC poll, up from just 14% in December.

Americans have sharply increased their spending as the pandemic waned a year ago, first splurging on furniture, exercise equipment and other household items and in recent months turning more to travel, restaurants and movies and concerts. Growing demand, partly fueled by government stimulus measures, has overwhelmed supply chains and driven prices up.

On a monthly basis, economists expect Wednesday’s report to show prices rose 1.1% in June from May, according to FactSet. Some economists estimate that up to half of this gain reflects higher prices at the pump.

Excluding the volatile food and energy categories, prices likely rose 0.6% in June for the third month in a row and 5.7% from a year earlier.

Monthly increases of this magnitude would likely convince the Federal Reserve of another large 0.75 percentage point increase in its benchmark short-term interest rate, which currently sits in a range of 1.5% to 1. .75%. At its rate-setting meeting last month, Fed officials implemented a 0.75 percentage point hike, the largest in nearly three decades.

Persistent inflation has baffled Fed Chairman Jerome Powell and other Fed officials, who embarked on the fastest series of rate hikes since the late 1980s in an effort to put her in step.

Powell stressed that the central bank wants to see “hard evidence” that inflation is slowing before reversing its rate hikes. Such evidence should be a “series of falling monthly inflation readings,” he said at a news conference last month.

Some economists worry that the Fed’s drive to rein in inflation could lead it to raise 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 cut spending a little, home sales are falling as mortgage rates rise and factory output fell in May.

The Fed would like to see weaker growth, which should help lower inflation. Healthy job gains in June point to an economy that is still expanding, with few signs of an impending recession.

Inflation is expected to slow later this year, but it’s unclear by how much. Oil prices fell to around $96 a barrel on Tuesday and other commodities, including metals like copper, also turned cheaper, largely on recession fears in the United States and Europe.

Shipping costs for international freight have dropped and there are fewer ships stranded at the Port of Los Angeles and Long Beach, the largest in the United States. Wholesale gasoline prices fell to around $3.40 a gallon, suggesting retail prices could drop to $4.20 by August, according to Omair Sharif, founder of Inflation Insights. Wholesale used car prices are also falling, indicating lower used car prices in the coming months.

Yet the price of many items continues to rise. Apartment rents jumped as stronger job gains and wage increases encouraged more Americans to move on their own. Average rents for new leases have risen 14% over the past year, according to real estate broker Redfin, to an average of $2,016 per month.

Rents measured by the government’s inflation index rose more slowly because they include all rents, including existing leases. But economists expect rising spending on new leases to push the government’s inflation measure higher in coming months.

Inflation has also increased abroad. It rose to 9.1% in the UK in May, the highest level in four decades, mainly due to rising petrol and food prices. In the 19 European countries that use the euro, it reached 8.1% that month, compared to the previous year, the record dating back to 1997.

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