'US Inflation Shock' June CPI Increase Rate Surpasses 9%... Possibility of 1%P Rate Hike Jumps (Comprehensive)

[Image source=AP Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] U.S. inflation surged to a 9% range increase, rising more sharply than market expectations. With no clear confirmation of an inflation peak, the Federal Reserve's (Fed) high-intensity tightening is gaining renewed momentum. Some are even suggesting the possibility of a so-called ‘jumbo step,’ where the benchmark interest rate is raised by 1.0 percentage point at once.

◆June CPI Exceeds Wall Street Expectations... 9% Range Inflation Shock

On the 13th (local time), the U.S. Department of Labor announced that the Consumer Price Index (CPI) for June surged 9.1% compared to the same month last year. This figure surpasses the previous month’s 8.6%, the largest increase since December 1981. It also exceeds the expert forecast of 8.8%. The June CPI rose 1.3% compared to the previous month.

The core CPI, which excludes volatile energy and food prices, soared 5.9% year-over-year. The core CPI growth rate peaked at 6.5% in March and has been slowing since April. However, it still exceeded market expectations (5.7%) and continued to rise 0.6% month-over-month.

By category, inflation was prominent in energy, food, and rent. Energy costs rose 41.6% year-over-year, the largest increase since March 1980. It also increased 7.5% compared to the previous month. Gasoline prices, in particular, led this energy cost surge, rising 59.9% year-over-year and 11.2% month-over-month. Electricity prices increased 13.7% year-over-year and 1.7% month-over-month.

Housing costs, which account for about one-third of the CPI, rose 5.6% year-over-year and 0.6% month-over-month. Rent increased 0.8% month-over-month, marking the largest monthly rise since April 1986.

Airfare fell 1.8% in June but remained 34.1% higher than a year ago. Food prices also continued a double-digit annual increase of 12.2%. New car prices jumped 11.4%. Economic media CNBC commented, "Everything from airline tickets to used cars, bacon, and eggs has soared," calling it "another tough month for consumers suffering from soaring prices."

◆Fed Tightening Gains Momentum... Calls for Jumbo Step

Despite the Fed’s tightening, there is still no clear sign that inflation has peaked, and high-intensity tightening is expected to accelerate. Even before the CPI announcement, the market had already accepted the likelihood of a 0.75 percentage point rate hike at the July Federal Open Market Committee (FOMC) meeting, known as a giant step.

Especially following last week’s U.S. employment report that exceeded expectations with solid figures, the June CPI’s surge into the 9% range has fueled speculation that an even larger rate hike cannot be ruled out. The market is now considering the possibility that the Fed might raise rates by 1.0 percentage point at once.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market reflects a 56.0% chance of a giant step in July. The possibility of a jumbo step, which was 0% just a week ago, jumped to around 44.0% on this day. This is a sharp increase from 0% a week ago and 7.6% the day before. The Fed will hold another FOMC regular meeting over two days starting on the 26th of this month.

Michael Schumacher of Wells Fargo said, "Currently, the federal funds futures market reflects a 0.81 percentage point rate hike in July," adding, "Some expect the Fed to raise rates by more than 0.75 percentage points."

◆Biden Says "Data is Lagging"... Market Concerns Over Recession Spread

However, U.S. President Joe Biden called the June CPI, which surpassed 9%, "unacceptably high" and claimed that "the data is lagging." In a statement, he pointed out, “It does not properly reflect the nearly 30-day decline in gasoline prices,” and “Prices of other commodities like wheat have also dropped sharply since this report was released.”

President Biden mentioned that the core CPI growth has slowed for three consecutive months since April and said, "This is the first time since last year that the core CPI growth rate has fallen below 6%," emphasizing, "We will do everything we can to lower prices."

Commodity prices such as oil and grains have recently shown signs of stabilizing downward. The U.S. national average gasoline price, which had previously surpassed $5 per gallon, fell to $4.64 on this day, down 4.7% from the June peak. The international oil benchmark, West Texas Intermediate (WTI), is trading around $97 per barrel.

In the New York bond market on this day, concerns over a recession intensified, causing the 10-year Treasury yield to fall. The decline in Treasury yields indicates increased demand for the safe-haven bonds, pushing bond prices up. Major indices in the New York stock market are also showing declines below the 1% range.