Inflation not only continued to rise in June, but data was even worse than expected. The Bureau of Labor Statistics (BLS) released its Consumer Price Index (CPI) on July 13, and the all-items index increased 9.1% for the 12 months ending June, a new four-decade high. The increase was broad-based, with the indexes for gasoline, shelter and food being the largest contributors.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.3% in June on a seasonally adjusted basis after rising 1% in May, the BLS said.
This was higher than expectations, as economists surveyed by The Wall Street Journal expected the CPI — which measures what consumers pay for goods and services including clothes, groceries, restaurant meals, recreational activities and vehicles — to have increased 8.8% in June.
Jeffrey Rosenkranz, portfolio manager, Shelton Capital Management, told GOBankingRates that “when the White House warns two days in advance that the inflation report will be bad, we knew it would be a rough one.”
He added that the 9.1% increase “locks in a 75 basis-point hike at the July meeting and maybe even puts 100 basis-points on the table.”
Rosenkranz noted, however, that it is important to reiterate that this is somewhat dated information, and improvement over the coming months is likely.
“But for now, the Fed will need to keep the pressure on with tighter financial conditions by pushing short-term rates higher into an already-slowing economy, and further inversion of the yield curve should follow. There will be plenty of time until the September 21 meeting for incoming data to cause gyrations in financial markets, especially when already-thin trading liquidity is exacerbated by August vacation season,” he said.
The index for all items less food and energy-core prices rose 5.9% over the past 12 months, higher than the 5.7% estimated by The Wall Street Journal.
The energy index rose 7.5% over the month and contributed nearly half of the all items increase, with the gasoline index rising 11.2% after increasing 4.1% in May.
John Catsimatidis, chairman and CEO of Red Apple Group — which owns and operates United Oil Refinery and 400 gas stations — as well as chairman and CEO of Gristedes & D’Agostino’s Supermarkets, told GOBankingRates that the CPI numbers released today are for June, when crude oil was at its highest.
“It has since dropped, so July figures will be lower, reflecting lower crude oil prices. Food prices, even though they are escalating based on June crude prices, should see a return to normalcy by September,” he said. I would urge Chairman Powell and the Fed to raise interest rates at a maximum of 25-50 basis points, as a larger increase will hurt the rest of our country. Inflation will slow and prices will come down as crude oil continues to drop. Canadian projections for 2023 are $75 a-barrel.”
The index for natural gas rose 8.2% in June, the largest monthly increase since October 2005. The energy index rose 41.6% over the past year, while the gasoline index increased a staggering 59.9%, representing the largest 12-month increase in that index since March 1980. The index for electricity rose 13.7% the largest 12-month increase since the period ending April 2006, while the index for natural gas increased 38.4% over the last 12 months, the largest such increase since the period ending October 2005.
According to Rusty Vanneman, chief investment strategist at Orion Advisor Solutions, “peak inflation will have to wait.”
“While there are some hopeful signs that we’re getting close to the peak in the inflation growth rate, such as lower commodity prices, we likely won’t see the actual peak for months, if not until early next year,” he told GOBankngRates. ” Given continuing global disruptions, along with how CPI is calculated, inflation peaking will be a multi-month process. Even then, we’ll still see higher prices and above-average inflation.”
He too said that it means the Fed will likely remain aggressive in raising short-term rates.
“Perhaps most significantly of all, given general investor sentiment and positioning for peak inflation sooner than later, it seems the “pain trade” – the market moving in the direction that causes the most pain to investors-is for lower stock and bond prices,” he added.
The food index increased 1% in June and the index for food at home also rose 1% percent. The BLS said that five of the six major grocery store food group indexes rose in June. The index for cereals and bakery products increased 2.1% in June, with the index for flour rising 5.3% The dairy and related products index rose 1.7%, while the fruits and vegetables index increased 0.7%.
The only major grocery group index to decline in June was the index for meats, poultry, fish, and eggs which fell 0.4% over the month as the indexes for beef and pork declined, the BLS noted.
The BLS said that while almost all major component indexes increased over the month, the largest contributors were the indexes for shelter, used cars and trucks, medical care, motor vehicle insurance and new vehicles. The indexes for motor vehicle repair, apparel, household furnishings and operations, and recreation also increased in June.
The shelter index increased 0.6% in June, as it did in May, with the rent index rising 0.8% over the month, the largest monthly increase since April 1986.
Over the last year, the shelter index rose 5.6%, the largest 12-month increase since the period ending February 1991.
The index for used cars and trucks rose 1.6% in June after rising. The medical care index rose 0.7% in June and the index for dental services increased 1.9% — the largest monthly change ever recorded for that series, which dates to 1995.
Austin Graff, co-chief Investment Officer TrueMark, told GOBannkingRates that inflation continues to be stickier than many analysts have predicted.
“This is not a surprise for those closely following public companies as many companies are planning continued price increases throughout the remainder of 2022,” he said. “Investors should not be relying on the Fed to bail them out by reversing policy on interest rate increases. The cost of capital is rising which makes valuation more important.”
Graff added that investors should focus on investing in attractively priced, high-quality dividend-paying companies with the ability to grow profitability in an inflationary environment.
“Selective investors can still find attractive opportunities in the healthcare, energy and utility sectors,” he said.
The BLS added that among the few major component indexes to decline in June were lodging away from home, which fell 2.8% in June following several increases in recent months and airline fares, which fell 1.8% in June after rising sharply in recent months.
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