U.S. inflation hits new four-decade high of 9.1% compared to the previous four-decade high of 8.6% in May. Core CPI, which excludes volatile food and energy components, increased by 5.9% in June from a year earlier, slightly less than May’s 6.0% gain. On a month-to-month basis, core CPI rose 0.7% in June, a bit more than their 0.6% increase in May. Energy prices went up 58.6% on a yearly basis, which is insanely high. Fortunately, the energy prices have been easing in the past few weeks. But the price increase is seen across the board with food up 12.5% and service up 8.3%. The inflation might have peaked in June but I suppose the inflation would stay elevated.
From what I have read from various sources, my bet is that we are probably not going back to the 2-4% inflation rate we were used to prior to the pandemic any time soon. The labor market has been tight. Now prices are getting higher across the board, workers would demand higher wages or switch to higher paying jobs to pay their bills. Businesses would have to raise the prices to reflect the increased labor and other costs. This price hiking would keep going until an equilibrium is reached. In the meanwhile, the Fed would probably raise the rates at least a couple more percentage points to dampen the consumer demand. I would be shocked if the Fed doesn’t raise another 0.75% late this month.
The stock market held up really well today with such bad news though. Nasdaq and Russell 2000 are basically flat. S&P 500 only dropped 0.5%. The next few weeks are going to be quite nerve wrecking for investors with the rate announcement and all the Q2 earning reports. Fortunately, I have separated the market drama from my personal finance drama. My portfolio is in a good long term state that I wouldn’t touch it for a while. In the meantime, I am ready to watch all the ups and downs of the market. It’s probably going to be a super crazy roller coaster ride.