Inflation hits four-decade high of 9.1%, signaling more interest rate hikes and adding to Democrats’ troubles

The price of chicken has risen 18.6 percent in the past year.Gene J. Puskar/Associated Press

WASHINGTON — Inflation rocketed last month to 9.1 percent, its highest annual level in more than four decades, dashing hopes that soaring prices had peaked as high costs continue to ripple throughout the US economy.

The latest consumer price index report released Wednesday was worse than economists expected and almost certainly means additional aggressive interest rate hikes by the Federal Reserve to try to bring down prices are on the way. The central bank has already raised its benchmark rate three times this year, to a target range between 1.50 and 1.75 percent, and the new inflation data has Wall Street expecting an increase of 1 percentage point later this month.

The new data also compounds the political troubles of President Biden and the Democrats. Although gas prices have dropped sharply in recent weeks, inflation is likely to remain high when voters go to the polls in November’s midterm elections.

“The report’s a disaster,” said Chris Rupkey, chief economist at FWDBONDS, a financial markets research company. “We had been hoping we were near the peak, but instead it’s looking like inflation is going to be here for the long haul and it’s looking like it’s much more entrenched.”

Prices jumped 1.3 percent from just May to June, the third straight monthly increase and the biggest since 2005. That pushed the annual inflation rate up from 8.6 percent in May to over 9 percent for the first time since 1981. Higher energy costs were the main driver, with gas prices up 11.2 percent in June from the previous month and 59.9 percent from a year earlier as sanctions on Russia for the Ukraine war constrained supplies around the world.

But energy was only part of the story. Grocery prices in June were up 12.2 percent over the previous 12 months, the largest increase since 1979, as Americans paid dramatically more than the year before for a host of staples, including eggs (up 33.1 percent), chicken (18.6 percent) and milk (16.4 percent).

Higher prices also seeped elsewhere into the economy. Rents were up 0.8 percent compared to May, the largest monthly increase since 1986. And prices for auto repair and maintenance had their biggest monthly jump — 2 percent — since 1974. One bright spot was airline fares, which declined 1.8 percent in June from the previous month, although those prices still were up 34.1 percent from a year earlier.

And there was hope when looking at so-called core inflation, which excludes volatile food and energy prices. The annual core rate was 5.9 percent in June, down for the third straight month. But although economists consider that a more reliable measure of inflation, consumers are still confronting those higher food and energy costs every time they go to the grocery store, a restaurant, or a gas station. And polls show they’re feeling the pain.

In an Economist/YouGov poll released Wednesday, 66 percent said inflation was a very important problem in the United States and nearly three-quarters — 72 percent — said it had negatively impacted them.

Despite rising wages, Americans’ finances are falling further behind. The Labor Department also reported Wednesday that average hourly earnings declined 1 percent in June from the previous month when adjusted for inflation rate, and were down 3.6 percent from a year earlier.

“You can’t sugarcoat this,” said Greg Valliere, chief US strategist for AGF, an asset management firm based in Toronto. With inflation running this hot, he expects Fed officials to increase interest rates by at least three-quarters of a percentage point at their July meeting, with more to come, which increases the risk of the nation tipping into a recession as the tighter credit slows economic growth.

The report also is “extremely negative” for Biden and the Democrats as they try to hold their slim majorities in the House and Senate, Valliere said.

The Labor Department released the inflation data just as Biden was stepping off Air Force One in Tel Aviv, on the first day of a Middle East trip that will include talking to leaders of Persian Gulf nations about increasing oil production to help lower gas prices.

White House officials argued in recent days that the June inflation report was outdated because it didn’t include recent declines in gas prices. The average national price for a gallon of regular gas was $4.63 on Wednesday, down about 15 cents from a week ago and nearly 40 cents over the past month, according to AAA. Biden made the same point Wednesday even as he vowed to continue working to lower prices.

“Tackling inflation is my top priority. We need to make more progress, more quickly, in getting price increases under control,” he said in a statement.

Biden blamed pandemic supply chain problems and Russia’s invasion of Ukraine for much of the problem, and called on Congress to pass legislation lowering costs for Americans on everyday expenses such as prescription drugs and health insurance premiums.

But Republicans blamed the policies of Biden and the Democrats, particularly the $1.9 trillion American Rescue Plan enacted last spring. Republicans and some economists say the law pumped so much money into the economy it helped ignite high inflation.

“These are staggeringly bad numbers, and they were fueled directly by the reckless spending spree that Democrats rammed through on party lines last year,” Senate minority leader Mitch McConnell, a Kentucky Republican, said Wednesday.

For months Republicans have branded high prices as “Bidenflation” as they hope to use Americans’ economic discontent to win control of Congress. And the Economist/You Gov poll found 45 percent of voters said Biden had “a lot” of responsibility for inflation and 72 percent said the issue would be very important in how they decide to vote in November.

“There’s no getting around the fact that inflation is a problem for the Democrats’ midterm prospects,” said Brad Bannon, who heads a political polling and consulting firm that works for Democratic candidates.

Bannon was hopeful the recent decline in gas prices would continue and push inflation down over the next few months. Combined with the anger of many voters over the Supreme Court’s decision to overturn Roe v. Wade and continued revelations about the Jan. 6 insurrection, that relief could help Democrats offset the negative economic news, he said.

But Valliere said that with inflation now over 9 percent, it’s unlikely to drop enough by November to make consumers forget about it. And as the party in power, Democrats will get blamed, he said.

“You can make an argument that perhaps inflation is close to peaking and you can make an argument that gasoline prices have also peaked, but this is still politically a very bad story for the White House,” Valliere said.

Correction: An earlier version of this story misstated the time period for June’s 0.8 percent increase in rents. The figure was compared to May.