Inflation's Up

This White House is so clueless on this issue. Even as gas prices are easing a bit, the Consumer Price Index topped 9 percent for last month, another record. This will be the defining issue in November. Upscale women will be pissed about abortion, and they may have an effect on some close congressional races, perhaps denying Republicans a pick up. But everybody else is going to be mad as hell on the economy. I expect a massive tsunami, especially on the House side, and don't believe anyone else who tells you otherwise. 

At WSJ, "U.S. Inflation Hits New Four-Decade High of 9.1%":

U.S. consumer inflation accelerated to 9.1% in June, a pace not seen in more than four decades, adding pressure on the Federal Reserve to act more aggressively to slow rapid price increases throughout the economy.

The consumer-price index’s advance for the 12 months ended in June was the fastest pace since November 1981, the Labor Department said on Wednesday. A big jump in gasoline prices—up 11.2% from the previous month and nearly 60% from a year earlier—drove much of the increase, while shelter and food prices were also major contributors.

The June inflation reading exceeded May’s 8.6% rate, prompting investors and analysts to debate whether the Fed would consider a one-percentage-point rate increase, rather than a 0.75-point rise, later this month. Slowing demand is key to the Fed’s goal of restoring price stability in an economy that is still struggling with supply issues, but raising interest rates also elevates the risk of a recession.

Core prices, which exclude volatile food and energy components, increased by 5.9% in June from a year earlier, slightly less than May’s 6.0% gain, the Labor Department said.

On a month-to-month basis, core prices rose 0.7% in June, a bit more than their 0.6% increase in May—a sign of inflationary pressures throughout the economy.

“Inflation makes everything difficult,” said Lara Rhame, chief U.S. economist for FS Investments. “It erodes your savings, your wages, your profits. It’s punishing everybody.”

Stocks declined on Wednesday after wavering for much of the day, with the S&P 500 index falling by 0.5%. Bond yields jumped following the inflation report, but yields on longer-term Treasurys quickly gave up those gains.

Despite June’s inflation reading, economists point to recent developments that could subdue price pressures in the coming months.

Investor expectations of slowing economic growth world-wide have led to a decline in commodity prices in recent weeks, including for oil, copper, wheat and corn, after those prices rose sharply following the Russian invasion of Ukraine. Retailers have warned of the need to discount goods, especially apparel and home goods, that are out of sync with customer preferences as spending shifts to services and away from goods, and consumers spend down elevated savings.

“There’s a pretty serious recession fear affecting a broad range of asset prices,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives.

Retailers’ ability to shed unwanted inventory could test whether pricing is returning to prepandemic patterns, Ms. Rosner-Warburton said. Some retailers, such as Target, have already said they are planning big discounts. Others with robust warehouse capacity, such as Walmart Inc., could be more likely to hold on to their excess inventory, analysts say.

“It would be really important if we do see discounting return, because it would show that we weren’t that far away from the pre-Covid environment in terms of pricing behavior,” Ms. Rosner-Warburton said.

Discounts haven’t shown up prominently in inflation figures so far: Prices for apparel and home goods both rose last month. New and used car price increases, a significant source of upward pressure on inflation, both eased on a month-to-month basis in June.

The Fed last month raised its interest-rate target by 0.75 percentage point, the largest increase since 1994. Besides tempering demand, the central bank is trying to prevent consumer expectations of higher inflation from becoming entrenched, as such expectations can be self-fulfilling. Fed Chairman Jerome Powell has said the central bank wants to see clear evidence that price pressures are diminishing before slowing or suspending rate increases...