Grab the ice, because we just got burned. Inflation saw its biggest annual jump in almost 41 years as the government's Consumer Price Index (CPI) surged 9.1% in June compared to last year. Analysts had forecasted that inflation would rise 8.8%, a much smaller increase over May's 8.6% jump. Prices in June rose 1.3% compared to May.
Higher food and energy prices fueled much of the increase, with food prices up 10.4% and gasoline prices up close to 60% from a year ago. Fuel oil (used to heat the water in your home, among other things) was up a whopping 98.5% from the same month in 2021. Excluding volatile food and energy prices, the "core inflation rate" edged up 0.7% in June, up slightly from May 0.6% gain. It was up 5.9% from a year ago, slowing slightly from May's 6% increase. Analysts had expected a lower annual gain of 5.7%. It means that you're not alone if you've been feeling that your dollars aren't stretching as far as they used to when you buy the essentials you need.
Inflation isn't a surprise or a shock to anyone at this point, but its relentless surge to the highest levels since 1981 puts pressure on the Federal Reserve to take a more aggressive approach to containing it. So what can you expect? A short answer is rate hikes and that could make it particularly painful for anyone in the market to buy a house, a car, or those with credit card debt.
But how aggressive exactly? While investors had previously thought an interest rate hike of 75 basis points was in the cards for the Federal Reserve policy meeting in two weeks, traders are betting there is now an over 46% chance of an increase in interest rates by 100 basis points, according to CME Group, based on fed fund futures data.
With mortgage rates expected to only get higher, it's likely that more and more interested homebuyers will choose to sit on the sidelines instead of buying a home, which could pressure sellers into lowering home prices. Mortgage applications to buy a home dropped 4% last week, sinking 18% since the week before as home sales cancellations have risen to their highest rate since April 2020 as more buyers back out.
- Kristin
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