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The Line: Consumer Prices Up 9.1% From a Year Ago

Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.

The consumer price index was 9.1% higher in June than a year ago, above the 8.8% forecast. Inflation is now rising at the highest annual pace since November 1981. While the price of everything is going up, energy prices have posted the sharpest increases. Fuel oil prices have surged 98.5% over the past year, while gasoline has jumped 59.9%. Housing rents—which make up about 30% of the consumer price index—have also been rising sharply as homebuying has slowed due to high prices and rising rates. It’s hard to say anything positive about this report, as prices are now rising at their fastest pace since the COVID-19 pandemic. If I had to choose one bit of optimistic news from this report, it would be the decline in core inflation the past two months. Core inflation excludes food and energy prices, as they tend to be very volatile. Core prices rose at a 5.9% annual rate in June, which was down from 6.1% in May and 6.4% in March. I’m not saying this means inflation is peaking—just trying to make lemonade from the lemons.

Producer Prices Rise 11.3% in June

The producer price index posted an 11.3% jump over the past year, just below the record of 11.6%. I won’t go over all the depressing data, but those interested can read the full report here.

Like the consumer price index, the one bit of hopeful news was a decline in the annual rate of core inflation. Core PPI rose at a 6.4% annual pace in June, after rising 6.8% in May.

What does all this mean for the economy and housing?

Mortgage rates will go up. After declining the past two weeks, Freddie Mac reported yesterday that 30-year rates for mortgages rose this week to an average of 5.51%. The good news is that rates are still very low historically, and the last time inflation was this high, rates were at 17%. So, things could be much worse.

Based on these inflation reports, the Federal Reserve is now expected to hike short-term rates by a full percent at their meeting later this month. That would be their biggest hike since the early 1980s, reaffirming their commitment to doing whatever it takes to beat inflation. But, remember that these aggressive rate hikes will slow the economy further, pushing it into a recession at some point.

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