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Inflation Sees Biggest Jump Since 2008

The Consumer Price Index, which is the major inflation metric, showed a surge of 5.4 percent over the last year through June

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Inflation

Data released Tuesday by the  Department of Labor shows inflation has surged in the biggest jump since 2008. The Consumer Price Index, which is the major inflation metric, showed a surge of 5.4 percent over the last year through June.

National Review reports the jump “exceeded many financial firms’ and economists’ predictions. For example, economists at Goldman Sachs expected only a 5.1 percent increase from the prior year, up from 5 percent the prior month.”

The Labor Department says the increase was largely driven by price hikes in the used car and truck market, which accounted for over a third of the increase. Lawmakers and the Federal Reserve suggest inflation will moderate as the pandemic dwindles.

“A large component in the inflation equation that the Fed can’t control as easily as inflation expectations, or what people think the direction of prices will be” reports National Review which also states, “the cues from some Fed officials have been mixed and somewhat ambiguous.”

“It’s still too early to tell how things are going to evolve,” said John C. Williams, the president of the Federal Reserve Bank of New York. “We’ll just have to watch it carefully,” he said Monday to reporters.

National Review reports:

When asked about the future of the Fed’s gargantuan asset purchase monetary policy, once referred to as “quantitative easing” after the 2008 financial crisis, William said: “The last few months, and I guess the last three months, we’ve seen some pretty strong movements, and kind of crosscurrents, both in the employment data and the inflation data.”

If inflation persists but wages do not move in lockstep with it, an effective tax will be imposed on the consumer, reducing the length a dollar can be stretched to pay for goods and services.

To curb inflation, the Fed has a few but limited weapons in its arsenal. One instrument at its disposal is to raise rates to prevent the economy from overheating, but that carries with it the risk of adversely affecting the stock market and other asset classes.

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1 Comment

1 Comment

  1. Pamela Tassey

    July 13, 2021 at 5:00 pm

    So…how much will my cost-of-living increase will I see on my Social security check?

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Economy

National Gas Prices Could Hit $6.20 Per Gallon By August

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Gas Prices

National gas prices could surge to well over $6 per gallon by the end of the summer, according to analysts at JPMorgan.

Natasha Kaneva, head of global oil and commodities research at JPMorgan, wrote in a research document that the United States was going to face a “cruel summer” as gas prices are expected to dwarf their already record highs.

“With expectations of strong driving demand — traditionally, the U.S. summer driving season starts on Memorial Day, which lands this year on May 30, and lasts until Labor Day in early September — U.S. retail price could surge another 37% by August to a $6.20/gallon national average,” she wrote.

“Typically, refiners produce more gasoline ahead of the summer road-trip season, building up inventories,” the analysts said. However, over the last month, “gasoline inventories have fallen counter seasonally and today sit at the lowest seasonal levels since 2019.”

The report comes the same week that the United States set a new record for gas prices with the average cost per gallon rising over $4 per gallon in all 50 states for the first time ever, according to a report from the American Automobile Association (AAA).

“The high cost of oil, the key ingredient in gasoline, is driving these high pump prices for consumers,” said AAA spokesperson Andrew Gross. “Even the annual seasonal demand dip for gasoline during the lull between spring break and Memorial Day, which would normally help lower prices, is having no effect this year.”

As explained in the report, “total domestic gasoline stocks decreased by 3.6 million bbl to 225 million bbl last week. Gasoline demand also decreased slightly from 8.86 million b/d to 8.7 million b/d. Typically, lower demand would put downward pressure on pump prices. However, crude prices remain volatile, and as they surge, pump prices follow suit. Pump prices will likely face upward pressure as oil prices stay above $105 per barrel.”

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Economy

Report: April 2022 Inflation Was Worse Than Expected

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The inflation crisis continued to worsen in April, according to new data released by the Bureau of Labor Statistics on Wednesday.

“The consumer price index, a broad-based measure of prices for goods and services, increased 8.3% from a year ago, higher than the Dow Jones estimate for an 8.1% gain,” CNBC reported. “That represented a slight ease from March’s peak but was still close to the highest level since the summer of 1982.”

According to the new CPI report, inflation “increased 0.3 percent in April on a seasonally adjusted basis after rising 1.2 percent in March… The all items index increased 8.3 percent for the 12 months ending April, a smaller increase than the 8.5-percent figure for the period ending in March. The all items less food and energy index rose 6.2 percent over the last 12 months. The energy index rose 30.3 percent over the last year, and the food index increased 9.4 percent, the largest 12-month increase since the period ending April 1981.”

Due to the rising inflation rate, the real wages of American workers continued to fall over the last year. According to a separate report from the Bureau of Labor Statistics, the “Real average hourly earnings decreased 2.6 percent, seasonally adjusted, from April 2021 to April 2022. The change in real average hourly earnings combined with a decrease of 0.9 percent in the average workweek resulted in a 3.4-percent decrease in real average weekly earnings over this period.”

As noted by CNBC, “Markets had been looking for signs that March’s 8.5% CPI reading would mark the peak in pandemic-era inflation.”

However, the new April report showed that “this is another upward inflation surprise and suggests that the deceleration is going to be painstakingly slow,” said Seema Shah, chief strategist at Principal Global Investors, according to CNBC.

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