Wholesale inflation in June surged 11.3% from a year ago

Inflation at the wholesale level climbed 11.3% in June compared with a
year earlier, the latest painful reminder that inflation is running
hot through the American economy.

The Labor Department reported Thursday that the U.S. producer price
index — which measures inflation before it hits consumers — rose at
the fastest pace since hitting a record 11.6% in March.

Last month’s jump in wholesale inflation was led by energy prices,
which soared 54% from a year earlier. But even excluding food and
energy prices, which can swing wildly from month to month, producer
prices in June jumped 8.2% from June 2021. On a month-to-month basis,
wholesale inflation rose 1.1% from May to June, also the biggest jump
since March.

Thursday’s report on wholesale prices came a day after the Labor
Department reported that surging prices for gas, food, and rent
catapulted consumer inflation to a new four-decade peak in June,
further pressuring households and likely sealing the case for another
large interest rate hike by the Federal Reserve. Consumer prices
soared 9.1% compared with a year earlier, the biggest yearly increase
since 1981.

Producer prices have surged nearly 18% for goods and nearly 8% for
services compared with June 2021. And the Labor Department said
wholesale transportation and warehousing prices shot up 23% and food
prices nearly 13% from a year ago.

The persistence of high inflation has eroded incomes, intensified
price pressures on companies large and small, and raised the risk of
an economic downturn as a result of ever-higher borrowing costs. It
has also diminished the public’s approval of President Joe Biden and
dimmed Democratic prospects in the November congressional elections.

The Fed has embarked on an aggressive series of rate hikes that are
intended to tame high inflation without causing a recession — a
notoriously difficult challenge.

The U.S. inflation surge erupted from the swift rebound from the 2020
pandemic recession, and it steadily accelerated as spending
outstripped the availability of labor and supplies. Generous
government aid and super-low rates engineered by the Fed sent
consumers on a spending spree that surprised businesses. Factories,
ports, and freight yards were overwhelmed, leading to shortages,
delays, and higher prices. Russia’s war against Ukraine magnified
energy and food inflation.

Some economists have held out hope that inflation might be reaching a
short-term peak. Gas prices have been falling. Shipping costs and
commodity prices have moderated. Pay increases have slowed. And
surveys show that Americans’ expectations for inflation over the long
run have eased — a trend that often points to more moderate price
increases ahead.

But this week’s reports showing persistently high consumer and
wholesale inflation pressures indicate that the Fed will remain under
pressure to continue raising rates sharply in the coming months. The
strength of the U.S. job market, with robust hiring and unemployment
at a near-half-century low, means that more people have paychecks to
spend, which will keep upward pressure on prices.

“Despite a modest improvement in supply conditions, price pressures
will remain uncomfortable in the near term and bolster the Fed’s
resolve to prevent inflation from becoming entrenched in the economy,″
Mahir Rasheed, U.S. economist at Oxford Economics, said in a research
note.

He added, “Higher production costs will sustain upside risks to
consumer prices as businesses tease out how much additional
pass-through consumers will tolerate.″

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