Key Takeaways From June’s Sizzling CPI

Our previous posts discussed the upcoming economic, political, and social events that would have an impact on the week’s trading activities. In this article, we will be focusing on one event, in particular, U.S. CPI for June. 

The US June CPI Index was released with Queen’s “Another one bites the dust” playing in the background (not literally though). However, several had predicted a cutthroat result of 8.8%, but reality hit harder with a 9.1% increase annually. This annual increase accounted for a 1.3% monthly increase since May. What’s more shocking is that this annual increase is the highest that the U.S has experienced in over four decades.

Going deeper, we can see that other than food and oil the total increase in CPI was 0.7% high from the previous month, while the annual increase was 5.9%.

 

U.S. Interest Rate Hike
The U.S. economy is discussed time and again in our blogs and posts since it is the major driver of the global economy. June’s interest hikes were on a 75-point basis and had investors biting their nails. As uncertainty grew, several analysts predicted a 100-point basis increase in interest. Fortunately for us, the release of the CPI has had Federal authorities rethinking interest hikes with the possibility of keeping a similar strategy for July and September.   

 

The Might U.S. Dollar and Gold prices

The U.S. currency index tracks against six other major currencies of the world. It is the first time in decades that the Euro has fallen below parity as a result of the energy crisis. Furthermore, despite the fact that the dollar always performs inverse to that of gold, the yellow metal is down this week. However, most analysts expect this to be only a timely position for the precious metal as it is expected to edge up soon.

Wage rates

The worst part of this sad story is that average hourly earnings in the U.S. dropped 3.6% in June, however, this isn’t where the story ends. A similar wage rate decline was last experienced before the infamous housing bubble. The inflation was majorly caused by an increase in prices of basic necessities like food, shelter, and oil. Despite the grim picture, the labor market in the U.S. managed to muster up nearly 400,000 jobs in the past week. As inflation eats away most of the incomes it has led to changing consumer patterns and lower savings. Lower wages and increased spending have caused consumer expenditures to fall down to 0.4% in June. 


Upcoming Impacts

U.S. Federal authorities kept a tight grip on monetary policies during the month of June to no avail.  Wednesday’s CPI release has all signs pointing towards a recession. Not to mention the lockdowns in China and the Russian-Ukrainian war are just adding Fuel to Fire. 


Food Prices

Food prices in the U.S. increased by 1% this month and 10.4% on an annual basis. A 10.4% increase is the highest food prices have been in four decades. However, analysts are hoping against hope, predicting easing food prices with a slump in transportation and raw materials costs. 


Real Estate; Rents and Sales
Various sectors of the economy are affected, leading the common man to suffer financially. Sheltering has become expensive owing to lowering wage rates and increasing processes. The real estate market will further encourage inflation. 

The CPI indicated a 0.8% monthly increase in rents. The rents in primary residents have increased at an unimaginable rate last seen in the late 80s. An increase in inflation only indicates a dull real estate market with lowering sales.


Energy Sources

Energy sources like gas and oil have been playing a tug of war between supply and demand since the war. As political sanctions ban imports from Russia a shortage has occurred. 

Final Thought
Without a doubt, inflation has a butterfly effect around the globe. it’s not just the economies that will be impacted, as evident by the political scenarios around the world. U.S. President Joe Biden and the Democrats are experiencing a decrease in support. On the other hand, Boris Jhonson has lost his seat as head of parliament due to a wavering economy. As leading economies waver the fate of other countries rests in the balance.

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