Prices in June climbed 9.1 percent from a year earlier, the fastest pace since 1981 as soaring gas prices, rising rents and swelling grocery bills made everyday life more expensive for Americans. The Federal Reserve was in trouble because of the rapid pickup in prices.
The inflation index, which includes food and gas, could fall in July because prices at the pump have fallen recently. Last month, the national average price of a gallon of gas was $5. It was $4.75 this week.
Gas prices can go up again. There was bad news beyond the headline number. The core inflation index, which excludes food and fuel prices, came in higher than anticipated. The core index grew at a slower rate of 5.9 percent in the year through June, but it was still better than the previous report. The core measure increased 0.7 percent from May to June, more than the previous monthly increase.
The question is whether that will continue. Since the coronaviruses began, the global economy has been buffeted by a number of shocks. Russia's invasion of Ukraine has disrupted oil and gas supplies and made it harder for airlines to fly at full capacity. It has been more than a year since economists have been able to predict when inflation will come down.
According to Powell, we now understand how little we know about inflation.
The Fed is no longer waiting for normal to return in order to keep prices stable. Consumers and businesses are worried that inflation could get out of hand.
If people begin to ask for higher wages in anticipation of price increases, companies could try to raise prices to make up for the increased labor costs. It's difficult for the Fed to stamp out rapid inflation.
The central bank has been increasing its attack on inflation. The Fed raised interest rates by a quarter point in March in order to make money more expensive to borrow. Last month it increased rates by 0.75 percentage points.
The central bankers want to raise rates by 3.5 percent by the end of the year, and they want to make another 0.75 point increase in July. They could raise rates by half a point in September and a quarter point in November andDecember.
Is the data enough to allow the Fed to slow down?
There are some things that are positive. Target is trying to sell off bloated inventories, which could cause retail prices to go down even more. Patrick De Haan at GasBuddy said that gas prices could go down even more if there is a de-escalation of the situation in Ukraine.
The gas outlook is clouded by the possibility of hurricanes.
Mr. De Haan doesn't want to say that the coast is clear.
The White House is worried that a new round of European penalties aimed at curtailing the flow of Russian oil by year-end could cause global energy prices to go up again.
Upward pressures on inflation are still present. Rents make up a large portion of household budgets.
Core C.P.I., the gauge that catches underlying inflation pressure, is expected to remain strong in late summer and to pick up in the fall, according to economists at Goldman.
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