US inflation hits 40-year high of 9.1 %, what can we expect?

The latest CPI data for June beat expectations, reaching a new four-decade high of 9.1 %. Markets are already betting on another 75 basis point hike from the Federal Reserve later this month as a result of steadily rising US inflation. 

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CPI reached a four-decade high of 9.1 %

Latest inflation data published The U.S. Bureau of Labor Statistics showed yesterday that the consumer price index — a benchmark measure of inflation — rose 1.3 % from the month of June 2022, bringing the annual U.S. inflation rate to a new 40-year high of 9.1 %.

Similar to previous months, gasoline, shelter and food indices were the most significant contributors to the CPI. According to the bureau, the energy and gasoline indices rose by 7.5 % and 11.2 % in June, while food rose by 1 %.

Inflation growth last month exceeded previous estimates by 8.8% increase. According to the consensus opinion, too core consumer price index in June it slowed down compared to May, growing only by 0.5 %. Instead, real core inflation was 20 basis points higher today.

The dollar index jumped to a two-year high of 108.57 as news of inflation rates emerged and the euro briefly extended its losses against the greenback to hit $0.9998.

As for the Federal Reserve, the market largely expects the central bank to raise the key Fed funds rate by another 75 basis points at its next meeting, scheduled for July 27. With the CPI numbers much higher than expected, there are also chances of even 1% rate hikes. The Fed has raised rates three times this year, pushing the rate to 1.5 % to 1.75 %.

An increase in the key interest rate makes credit more expensive and, as a result, reduces the money supply in the economy. In theory, this should reduce reduce inflation. But American consumers, who are responsible for roughly 70 % of the country's economic growth, are in a bind. As it stands, they are being squeezed from both sides: they have to pay ever higher prices for goods and services, while paying higher interest rates on their loans.

A slump in consumer demand, on the other hand, directly affects the bottom line of companies, which could reflect badly on their stock prices. Rising inflation and interest rates, in turn, leave consumers with little money for additional spending, including investing in risky assets such as cryptocurrencies.

As a result of the CPI release, the cryptocurrency ax was briefly hit and Bitcoin fell below $19,000. At the time of writing, crypto assets have recouped their losses and are in the green.

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All content in this article is for informational purposes only and does not in any way serve as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.