US inflation surged 9.1% in June from last year, hitting a fresh 40-year high as gasoline, shelter and food prices continued to rise.
The US consumer price index exceeded forecasts once again, with economists predicting an 8.8% increase. Prices rose 1.3% last month, following a 1% jump in May to 8.6%.
The increase was broad-based, but gas, shelter and food were the largest contributors, the US Bureau of Labor Statistics reported today (13 July).
After subtracting items like food and energy, core inflation rose by 0.7%, up from 0.6% in May. This resulted in an increase of 5.9% on an annual basis, which is about in line with the 6% rate reported the previous month.
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"US inflation has continued to accelerate. Every month we wait for it to peak and are getting disappointed; core inflation is the root of the problem and this probably confirms a 75bps move by the Fed at the next meeting," said Neil Birrell, CIO at Premier Miton Investors.
"Bond yields will react to this, equities will feel the pain and the dollar will be supported even more. It's difficult to know where to look for good news at the moment."
The figures mean that a 0.75% hike from the Federal Reserve at their next meeting is "an absolute certainty", said Richard Carter, head of fixed interest research at Quilter Cheviot, adding that there may even be more pressure from some quarters for them to do more.
"Central banks are clearly struggling to get a handle on inflation and if this number continues to grow or hover around this level then more will be required to drive it down, regardless of the economic consequences this may have," he said.
"Markets are likely to remain volatile on the back of this although the fall in the oil price in recent days does offer some hope that inflation pressures will begin to ease later in the year. However, there needs to be signs soon of this translating into the inflation rate."
Fed confirms aggressive inflation mandate with biggest interest rate hike since 1994
Some economists have held out hope that a short-term peak in inflation may be getting closer. Following Russia's invasion of Ukraine in early March, Brent crude rose to about $140 per barrel. This week, it fell below $100 per barrel. Global food costs have also come down from their all-time highs.
Seema Shah, chief strategist at Principal Global Investors said that she sees interest rates moving to 4.25% next year as the Fed desperately attempts to recover from its earlier erroneous inflation read.
