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Consumer Inflation Accelerates while US Retail Sales also Rise

The consumer-price index rises to its highest level in over 40 years while inflation continues to climb and recession looms.
Consumer Inflation Accelerates while US Retail Sales also Rise

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, reports The Wall Street Journal.

U.S. Inflation Hits New Four-Decade High of 9.1% (The Wall Street Journal)

Excerpt from The Wall Street Journal: The consumer-price index’s advance for the 12 months ended in June was the fastest pace since November 1981. 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.
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In a related story also from The Wall Street Journal, shoppers boosted retail spending in June by 1% even though they faced higher inflation and an uncertain economic outlook. Consumers spent more last month across a broad range of goods, including furniture, groceries and gas. They also spent more at restaurants. Spending declined at building-supply, clothing and department stores.

U.S. Retail Sales Rose 1% in June (The Wall Street Journal)

Excerpt from The Wall Street Journal: Some of the growth in retail sales last month likely reflects that consumers were paying higher prices for goods and services. Unlike many other economic-data reports produced by the U.S. government, retail sales aren’t adjusted for inflation. That means higher retail-sales figures can reflect higher prices rather than more purchases. Businesses are adding jobs at a solid clip and workers are receiving wage increases. Household finances are also remarkably strong. Those factors are helping position consumers to continue spending as inflation surges, economists say.
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According to The New York Times, persistent price gains portend trouble for President Biden, whose approval ratings have taken a hit amid climbing costs, and could require continued forceful action from the Fed. The central bank is raising rates to slow the economy and to try to restrain inflation, and it is likely to continue adjusting policy quickly — even if doing so risks tipping the economy into a recession — as inflation looks increasingly out of control.

Inflation Soared in June, Pinching Consumers and Challenging Policymakers (The New York Times)

Excerpt from The New York Times: "It’s an ugly report," said Julia Coronado, the founder of MacroPolicy Perspectives. "I don’t think there is anything good about this report, as far as the Fed is concerned, as far as the U.S. consumer is concerned." The global economy has been buffeted by a series of shocks that have pushed inflation higher since the outset of the pandemic. Factory shutdowns and shipping shortages have roiled supply chains, and worker shortages are making it harder for airlines to fly at capacity and for hotels to rent out rooms. Russia’s invasion of Ukraine has disrupted gas and food supplies. While economic policymakers initially hoped that the disruptions would fade and that prices would ease on their own, they have stopped waiting for that to happen — especially as price increases prove not only pronounced but also widespread, rising rapidly across an array of goods and services.
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