Home News Wholesale Inflation Accelerated in June to 11.3% on Energy Cost Spike

Wholesale Inflation Accelerated in June to 11.3% on Energy Cost Spike

by William Bill
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Wholesale inflation

Wholesale inflation rose 11.3% annually in June, another report showing how inflation is becoming entrenched in the economy, the Bureau of Labor Statistics reported on Thursday.

The monthly increase of 1.1% follows a 0.9% increase in May and a 0.4% increase in April. June’s rise was above expectations of a 0.8% increase.

The yearly number is up from 10.9% in May. The core rate, stripping out energy and food costs, did drop to 6.4% from 6.7%.

More than half of the increase came from gasoline prices, which were up 18.5%. By contrast, prices for chicken eggs fell 32.5% and iron and steel also decreased.

The report follows a Wednesday reading of the consumer price index showing inflation hitting 9.1% for the 12 months ending in June. That is the highest level since late 1981 and was higher than economists had forecast. Producer prices typically feed into the costs consumers bear when they go shopping.

Markets were sour ahead of the release with the Dow Jones Industrial Average futures down more than 400 points. Two pillars of the finance world, JPMorgan Chase and Morgan Stanley, reported second-quarter earnings Thursday morning, with JPMorgan saying its profit fell 28% due to provisions for expected loan losses and Morgan Stanley missed analysts’ estimates on account of bad results in its investment banking unit.

The twin inflation reports come ahead of the July 26-27 meeting of the Federal Reserve’s monetary policy committee. Markets have been pricing in a 75 basis point hike at that meeting, after a similar increase in June, but a few analysts say the central move could be even more aggressive in the wake of the CPI data, perhaps raising rates by 1%.

“The question that has to be asked, especially after the Fed’s surprise move from a well-telegraphed 50-basis point interest rate hike expected for the June Fed meeting, that switched dramatically to a 75-basis point move following last month’s higher than expected CPI report, is a 1% interest rate option going to be discussed at this month’s Fed meeting,” Quincy Krosby, chief equity strategist at LPL Financial, said on Wednesday.

“The University of Michigan’s preliminary consumer sentiment index, with its consumer 5-year inflation expectations report, takes on increasing importance,” Krosby said, referring to a report out Friday.

“If consumer expectations for inflation climb higher, the possibility of a 1% interest rate move will certainly be discussed by Fed members,” he added. “The Fed fund futures market has already begun the conversation.

The higher prices, along with the Fed’s move to a much more aggressive monetary policy, are buffeting businesses large and small. A survey from online payments firm Veem found that 49% of small business owners expect a recession this year while 63% of them are worried about the financial health of their business.

“Small business owners are feeling the effects of big economic themes in their everyday lives as inflation and interest rate hikes become top of mind,” said Marwan Forzley, CEO of Veem. “Many entrepreneurs are still struggling to regain their footing after two years of uncertainty and are looking to navigate a challenging landscape for months ahead.”

Meanwhile, the number of people filing for unemployment claims last week rose to 244,000 from 235,000 a week earlier.

The four-week moving average was 235,750, an increase of 3,250 from the previous period.

The labor market has been a bright spot in the economy for much of the year, with strong job growth and low unemployment. But it is not clear whether that can continue in the face of a weakening economy, untamed inflation, and higher operating costs for businesses.

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