New inflation record in the US

The tension surrounding the inflation figures was so great that a false statement by the US Department of Labor had already made the rounds on Twitter on Tuesday. The government had to share a position denouncing this fake inflation rate of 10.1% and reminding that the true statistics would be revealed the next day.

The reality revealed itself under this infox. But also above the economists’ forecasts, which saw the consumer price index rise to +8.8%. On an annual basis, it finally rose to +9.1% in June, after +8.6% in May. This is a new high for forty years. The biggest increases are in energy, food and housing prices. Excluding the first two components, so-called core inflation was also higher than expected at 5.9%.

Also read: BlackRock says central banks “must accept higher inflation”

The announcement didn’t fail to rock European markets. Already on the bottom they were sinking into the red. Major US indices opened moderately lower before recovering almost evenly at 18:00 GMT US 10-year Treasury yields also fell to 3%. Above all, the euro, which had been close to parity with the dollar for a few days, broke this for the first time since 2002, the year the common currency was introduced. Minutes after the press release was sent, the exchange rate plummeted to $0.9998 to 1 euro before bouncing back above parity.

Jumbo rate hike

This inflation number confirms the experts in the idea that the US Federal Reserve (Fed) will implement a new interest rate hike, known as “jumbo”, because it should amount to 75 basis points, as in June. Before that, the institution had not taken such action since 1994. For some analysts, the Fed could opt for an even sharper 100 basis point move.

Also read: The Fed is taking historic measures to counter inflation

Inflation has become a key issue since late last year. Initially analyzed as “temporary,” it appeared much tougher due to shortages and disruptions in production chains related to the pandemic. The problem was compounded by post-war energy price increases in Ukraine.

Because inflation affects basic needs, it has also become a major political issue, weighing on Joe Biden’s popularity. Before releasing the figures for June, the US government also tried to put them into perspective, emphasizing that it would not take into account the current drop in oil prices. “We expect last month’s inflation numbers to be very high, mainly because gasoline prices rose very sharply in June,” the White House spokeswoman told AFP.

Increased risk of recession

But central banks are struggling to contain this rise in prices and risk facing a new problem, that of an economic slowdown turning into a recession.

In a statement released Wednesday morning, UBS analysts warned that today’s numbers are unlikely to be reassuring. Still, they see positive signs: “Long-term consumer expectations are trending downwards, reducing the risk of price pressures taking root.” They also add: “Prices are becoming slower in areas where consumer demand was overheated due to the pandemic and is now slowing.” slowed down, more and more subdued.” Finally, the base effects become more favorable as the year progresses.

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