Biden feels the heat as US inflation hits 40-year high
IMF to lower global growth forecast, UK economy expands, euro hits parity with the dollar
27 minutes ago
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A bigger-than-expected jump in US inflation to 9.1 per cent, a fresh 40-year high, has fuelled expectations that the Federal Reserve will act decisively to raise interest rates this month.
The annual rise in the consumer price index beat economists’ forecasts of an 8.8 per cent increase and triggered a sell-off in US stocks and Treasury bonds.
Prices jumped another 1.3 per cent between May and June, following a 1 per cent rise in May. Once volatile items like food and energy are stripped out, “core” inflation edged up from 0.6 to 0.7 per cent, leaving an annual increase of 5.9 per cent, slightly down on the 6 per cent recorded the month before.
The Biden administration, which has been feeling the heat from the surge in inflation, tried to play down the rise, arguing it covered the period before prices for energy and other commodities dropped sharply.
The threat was highlighted by the IMF yesterday as it cut its forecast for US growththis year to 2.3 per cent, a drop of 0.6 per cent from its estimate last month. “Wage and price pressures are broad based [and] . . . have spread quickly across the economy. Longer-run measures of inflation expectations have started to drift higher and shorter horizon measures of inflation expectations have increased significantly,” the IMF said.
In an unusual prelude to today’s figures, the Bureau of Labor Statistics was yesterday forced to discredit a fake report that claimed inflation had hit 10.2 per cent, triggering a sell-off in US stocks from jittery investors, already nervous about a potential recession as consumer and business sentiment deteriorates. “We have seen the consumer getting squeezed by the higher cost of living and by monetary policy, which could lead to a consumer-led recession,” said Erin Browne, portfolio manager at Pimco.
Although last week’s jobs report was more positive than expected, some economists are convinced that a labour market slowdown is under way, as job openings and resignations decline and jobless claims rise. Google told employees yesterday it would be “slowing the pace of hiring for the rest of the year” as the threat of recession rises, following similar moves from Microsoft and Facebook’s owner Meta.
As the US president is experiencing, inflation is a political challenge as much as an economic one, a point taken up by Martin Wolf in his latest column. “Quite simply, people care about it,” he reminds us. “Not least, unexpected inflation also means unexpected cuts in real incomes.”
