If you’re determined to succeed, nothing can stand in your way – much like the current US inflation rate. In May, inflation in the US reached 8.6%, one of the highest in the world and a four-decade high for the country. In June, it broke records by climbing as high as 9.1%.
Why is US inflation so high?
According to the latest report, the US inflation rate hit a 41-year high of 9.1% in June 2022.
One of the reasons for its meteoric rise is surging gas prices, as many parts of the country saw a gallon cross $5 for the very first time. The increase in consumer prices pushed the current inflation rate in the US over the edge, reminding people of November 1981, when these numbers were last seen.
The US Bureau of Labor Statistics reported that the Consumer Price Index (CPI) jumped 1.3% in June, marking the third time in the last four months it crossed 1 percent. Economists polled by The Wall Street Journal had forecast a 1.1% advance. The announcement resulted in markets swinging wildly as stock futures hung in the balance.
The hike in prices for everything from food to gas caused inflation to spike as households struggled to meet the costs to necessities. The current inflation rate in the US is rising much faster than average incomes. Real hourly wages have fallen 3.1% in the past year, squeezing household budgets. In June, they sank by 1%. This has also resulted in businesses trying to cope with surging prices and reduced demand.
Apart from food, gas, oil, rent, and fertilizers, prices also rose for new and used vehicles, auto insurance, clothing, household furnishings, and medical care. The cost of oil and gas rose by nearly 7.5% in June, which resulted in a major increase in cost of living.
The effects of inflation on consumers are manifold as it permeates every area of life.
US stocks closed modestly lower on Wednesday after investors digested the unpalatable news. By the time of the closing bell, all three major US equity indexes had slipped into the red zone.
Effects of Rising Inflation
The Euro hit parity with the Dollar for the first time in 20 years. Investors flocked to the US Dollar as uncertainty reared its ugly head, brought on by unstable economic conditions and the possibility of an energy crisis in Europe.
Russia’s invasion of Ukraine resulted in supply chain disruptions across the world. Western nations also imposed sanctions on Moscow that have affected imports and hiked the prices of essential commodities across the world. This led to the highest inflation rate in decades, with the economy struggling to play catch up.
Central bankers in the United States and Europe have committed to bringing down inflation through higher interest rates, even as the global economic outlook remains grim. The US Federal Reserve is expected to raise interest rates this month, possibly by 100 basis points, following a worrying inflation report that showed price pressures accelerating further. By raising rates, the central bank hopes to cool off the economy just enough to bring down inflation without triggering the frightening beast – recession. However, economists remain doubtful about its possibility and continue to remain vigilant.
To bring US inflation under control, the Fed will keep increasing interest rates. But if the rates go beyond a certain threshold, it can slow down the economy, pushing the US into a state of recession, the second in three years. The continuous spike in inflation has also threatened people’s faith in the economy, sending approval ratings for the current government tumbling. Though some experts believe inflation might slow this year, it is not clear by how much.
