Inflation is at its highest level in 40 years.

Inflation is at its highest level in 40 years. What does that mean for shoppers and the upcoming Fed rate hike?

Inflation has reached its highest rate in nearly 41 years

Inflation jumped again in June due to the continued rise in gas, food, and rent costs, hitting a 40-year high and likely to bolster the Federal Reserve's plans to raise interest rates again this month.

The Labor Department's Consumer Price Index on Wednesday showed prices rising 9.1% from a year earlier, up from an annual rate of 8.6% the previous month, and the biggest gain since November 1981. Economists polled by Bloomberg had estimated inflation would rise to 8.8%.

On a monthly basis, purchaser costs rose  1.3, the largest such jump since 2005, compared to a 1% rise in May.

“Ouch,” Ian Shepherdson, chief economist at Pantheon Macro Economics, wrote in a research note on the recent price rally.

Amid indications that inflation is set to ease gradually, he, along with other economists, indicated that June was likely to have peaked, although a similar announcement in the spring was premature.

The June CPI reading was above May's annual rate of 8.6%, prompting Fed officials to switch to a faster pace of rate hikes.

Stocks fell after the data was released, and later regained some ground. Investors were closely watching the report for clues about the future of central bank policy and the broader economy.

1- stock market reaction

The report supports the Federal Reserve's plans to raise its key interest rate by three-quarters of a percentage point for the second month in a row as part of an aggressive campaign to curb inflation.

The development has already disappointed fanatical investors. After the release of the latest numbers, the Dow Jones Industrial Average fell more than 300 points. The S&P 500 is down 37 points, nearly 1%. Ten-year banknote yields emerged. In midday trading, they hovered at 3.03%.

What causes inflation?

The June rally was again led by gasoline prices, which rose 11.2% from the previous month and 59.9% annually. The good news is that the average unleaded average came in at $4.65 on Tuesday, down from $5 a month earlier.

Grocery prices are up 1% from May and 12.2% over the past 12 months. The costs of both gas and food have skyrocketed due to the Russian war in Ukraine which has disrupted global supplies of oil, wheat, corn, and other commodities.

In June, grain prices rose 2.5% from the previous month and 14.2% from a year ago. Bread is up 1.6% monthly and 10.8% yearly. Chicken costs are up 1.5% compared to May and 17.3% annually.

There were a few empowering signs. Bacon costs fell 1.9%, the second major monthly decline in a row. Beef and veal prices fell 2.3%

Will food prices drop?

Commodity prices have fallen recently amid fears of a recession and declining consumer demand. This has already led to lower gas prices and paved the way for more moderate increases in food prices within months, says Wells Fargo economist Sam Pollard.

What is rent inflation?

Rent is up 0.8% per month and 5.8% over the past year as people who crowded with family members during the pandemic have moved into their apartments.

Does the report raise the risk of recession?

Yes, at least to an extent. Higher inflation is causing consumers to rein in spending, which makes up about 70% of economic activity, and could mean higher federal interest rates, which could hurt borrowing. Bank of America says the report matches its call for a recession in the second half of the year.

Is this close to the worst inflation since World War II?

Not right. In March 1947, inflation reached a staggering 19.7%. The surge has its roots in the effects since the end of the war — the elimination of price controls, shortages of supplies, and pent-up demand, according to a White House blog.