US inflation expected to hit 8.8% in June putting further pressure on the Fed

US consumer prices are expected to have risen at an annual pace of 8.8 per cent in June, minting a fresh 40-year high and cementing expectations the Federal Reserve will deliver another jumbo rate rise this month.

According to a consensus forecast compiled by Bloomberg, the consumer price index published by the Bureau of Labor Statistics on Wednesday, is set to have accelerated again, recording the fastest year-over-year increase since December 1981.

From the previous month, prices are predicted to have jumped another 1.1 per cent, following a 1 per cent rise in May.

Once volatile items like food and energy are stripped out, “core” inflation is expected to have risen 0.5 per cent in June, compared with May’s 0.6 per cent advance. That would translate to an annual increase of 5.7 per cent, down from the 6 per cent pace reported the month earlier.

The data are likely to spur the US central bank’s efforts to restore price stability, which dramatically intensified last month after officials abandoned previously-laid plans to deliver a half-point rate rise and instead implemented the first 0.75 percentage point increase since 1994.

Policymakers have also signalled their intent to raise rates to a level that begins to restrain economic activity by the end of the year — which is estimated to be around 3.5 per cent — and maintain an aggressive approach to tightening monetary policy until there is evidence that monthly inflation readings are decelerating towards a pace more consistent with the Fed’s 2 per cent target.

The Biden administration, whose popularity has plummeted against the backdrop of soaring inflation, this week warned June’s reading would be “highly elevated”, but sought to play down the acceleration, emphasising that the data cover a period prior to a sharp drop in energy prices.

Brent crude, the international oil benchmark which had climbed to almost $140 a barrel in early March following Russia’s invasion of Ukraine, this week slumped below $100 a barrel.

On Tuesday afternoon, a fake version of the June report circulated online falsely stating that prices had risen at an annual rate of 10.2 per cent, forcing the Bureau of Labor Statistics to publicly discredit it.

Should the Fed raise rates by another three quarters of a percentage point at its July meeting, as expected, the target range of the federal funds rate will rise to 2.25 to 2.50 per cent.

Alongside these actions, which include shrinking its $9tn balance sheet, the Fed has stepped up its rhetoric about not only its “unconditional” commitment to lowering inflation, but also what it is willing to risk in terms of the economic recovery to do so.

While labour demand has remained extremely strong, with another 372,000 jobs created last month alone, economists fear that momentum will soon ease as the US economy hurtles towards a recession at some point next year.

The Fed has already begun to acknowledge unemployment will need to rise, with officials most recently forecasting joblessness to inch up from the current historically low level of 3.6 per cent to just above 4 per cent by the end of 2024.

Many economists believe a more accurate estimate is in the vicinity of 5 per cent, translating to significantly more job losses.

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