It’s not the kind of historical comparison you want to hear.
Inflation, as measured by the Consumer Price Index (CPI rose at a 9.1% annual rate in June. That was the highest annual rate since November 1981. (Just as the Volcker Fed was raising interest rates to 14% to finally break inflation.)
Economists had been expecting inflation of 8.8%. Which would still have been an increase from May’s 8.6% headline rate.
“Core” CPI, which excludes the volatile food and energy prices (because the Fed knows Americans don’t really need to eat or drive) rose at an annual 5.9% state in June. That was a slight dip from the 6.0% core rate in May. Economists had been looking for a steeper drop to a 5.7% increase in core inflation.
Energy prices explain a good part of the June increase. The CPI energy index soared 7.5% in June and is now up 41.6% year-over-year. That’s the largest 12-month increase since April 1980.
Today’s inflation report just about guarantees a 75 basis-point interest rate increase from the Federal Reserve at its July 27 meeting.
Or more.
Today, the CME FedWatch Tool calculates that the Fed Funds Futures market is pricing in a 67.8% chance of a 100 basis point increase. Yesterday the odds of a 100-basis-point move were just 7.6%.
As you might expect, stocks weren’t happy with the news. But as you might not expect they weren’t really very shocked.
After breaking bad on the news the major U.s. indexes have recovered. At 2 p.m. New York time the Standard & Poor’s 500 was off 0.47% and the Dow Jones Industrial Average was lower by 0.74%. The NASDAQ Composite was down 0.19%. But the small-cap Riussell was up 0.21%.
