You might have heard that inflation numbers are backward-looking, meaning that this week's higher-than-expected Consumer Price Index (CPI) inflation figures were for goods and services you bought in the past, and don't reflect what inflation might actually be today. And that's true, for the most part.
But that's not the case for all inflation figures. Wholesale inflation, as counted by the Producer Price Index (PPI), is considered a leading indicator for the prices we will pay once the product hits the shelves. That's because producers often pass higher costs onto you by raising prices, and a jump in the PPI could indicate how much prices will increase before reaching us, the shoppers, in stores. Today's release showed the PPI increased 1.1% in June, up from 0.9% in May, mainly driven by higher energy prices. And it jumped 11.3% from the same time in 2021, in its largest year-over-year increase since March.
That doesn't necessarily mean that consumer inflation will increase again this month, but it is likely that the rising costs for businesses will be passed on to us. So if wholesale prices continue to rise, it's likely the prices we pay will rise with it.
All of this inflation is putting more pressure on the Federal Reserve to turn down the heat on the U.S. economy by raising interest rates again. While it was expected that the central bank would raise interest rates by 75 basis points or three-quarters of a percentage point at its policy meeting later this month, now markets are pricing in an 80% chance that interest rates will be raised 100 basis points. That's a huge jump that is sure to hit borrowers hard, as interest rates on loans like mortgages will start to increase even more.
Investors don't love the idea of even higher rate hikes either, as it eats away at corporate profits and slows down economic growth enough to make a recession even more likely. Stocks are tumbling today in response to all the latest inflation data and the anticipation of the Fed's future moves.
- Kristin
0 Response to "Will Inflation Rise Even More?"
Post a Comment