Inflation Hits 9.1%, Getting Worse Before Getting Better

With prices going up 1.3% in June—two consecutive months of at least 1%—and 9.1% over the year, today’s Consumer Price Index report suggests the worst is behind us. With inflation above expectations and the labor market proving resilient, the Fed is likely to proceed with a 75 basis-point rate hike later this month, further tightening financial conditions. 

Even ahead of further tightening, there are signs that inflation is already being brought under control:

  • Year-over-year core inflation slightly slowed down from 6.0% to 5.9%. Core inflation increased to 0.7% over the month, compared to 0.6% in the last 2 months. However, a slow down is ahead of us since international shipping costs have fallen for producers in recent months as global supply chain pressures have eased.
  • Gas prices are down to $4.63 as of today, from $5.01 a month ago. Since energy contributed nearly half of the all items increase in June’s high number, and is a common input in every single industry including food and transportation, the impact of high energy prices on consumers is not limited to its  8% weight in the consumer basket.
  • 10 year TIPS (Treasury breakeven inflation rate) is on a downward trend since the most recent rate hike in June, currently at 2.32%. The current number suggests that the investors expect the inflation to be around 2.3% over the next 10 years, which is aligned with the Fed’s target of 2 to 2.5%.
  • High prices are broad-based with food, gas, and housing costs being the largest contributors.
    • Though the mortgage applications have gone down drastically, we are yet to see the impacts of high mortgage rates on housing prices. The overall shelter index increased  0.6% in June, and 5.6% over the last year, the largest 12-month increase since February 1991.
    • After increasing 48.7% over the year in May, gas prices surged another 11.2% in June—a sharp acceleration from last month’s 4.1%—, which brings year-over-year growth to 59.9%. However, since gas prices are down to $4.63 as of today, from $5.01 a month ago, we are likely to see the index moving into the right direction in next month’s report. Energy single-handedly contributed to nearly half of today’s number. So declining energy prices now could reverse inflation’s trajectory in the next report. 
    • We had another month of food prices seeing double-digit hikes, increasing at a 10.4% rate, the first increase of 10 percent or more since the period ending February 1981. Prices for both food at home and food away from home picked up significantly, to 12.2% and 10.4% respectively.
    • The index for dental services increased 1.9 percent in June, the largest monthly change ever recorded for that series, which dates to 1995.
  • As consumer preferences shift back from commodities to services, prices for services are being pushed higher.
    • In June inflation in both durable goods and core services—services excluding energy—have accelerated, 0.7% each.
    • Although normalizing consumption patterns are good news for the U.S. economy, which is predominantly a service economy, it also means that inflation is likely to linger even as global supply chain issues resolve since both prices of goods, and services remain elevated.
  • High inflation is affecting the labor market. Here are three ways that job seekers in the market right now are altering their job search plans to escape higher prices:
  1. Job seekers are flocking towards remote roles to reduce their transportation costs. High gas prices and car prices have made commuting considerably more expensive, which has made many job seekers prioritize “where” over “what” in their next job. 37.5% of job seekers surveyed by ZipRecruiter in June said rising gasoline prices have made them more likely to look for remote work, whereas another 10.1% said inflation had made them more likely to seek a higher-paying job.
  2. Older workers are unretiring, pushed by inflation. In June, 21.5% of job seekers who are currently looking for a job said they had retired at some point previously. Among those, 35.8% cited inflation as the number one reason that they have since unretired and are now seeking employment. Another 26.2% said that they are rejoining the workforce because they are running out of retirement savings.
  3. Job seekers are rejecting offers that pay too little. In a market where employers are fiercely competing for candidates, 48.0% of job seekers in June said that they had already secured at least one job offer. Among those, almost half—49.7%—said they had rejected an offer, with 26.7% citing “not enough pay” as the reason for doing so.

Written by

Sinem Buber is an economist at ZipRecruiter with a focus on US labor market insights and trends. Previously, she worked at ADP Research Institute where she published the ADP National Employment Report. She holds a PhD in Economics from The Graduate Center, CUNY.

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