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Inflation jumped 8.5% in July, raising fears of a sharp rate hike

Inflation surged to 8.5% in July, the highest level in 40 years, prompting the Federal Reserve to demand essentials such as food, gas and rent.

The Labor Department's Consumer Price Index (a measure of the cost of goods and services) for July showed inflation hitting a new peak of 9.1%. , down slightly from the previous month when it reached ..

This number is the highest since 1981 and is largely due to record high gas prices that have fallen since then.

Ahead of the release of the consumer price index, economists said he expected July inflation to rise 8.7 percent year-on-year and 0.2 percent month-on-month, according to Dow Jones data. I had predicted.

The economist said he expected core inflation to reach 6.1% this month. The Fed's inflation target is 2%.

The latest data supports the market's view that the Federal Reserve will take aggressive action to curb inflation in the coming months.

Falling gas prices were the main driver of the modest drop in June and July. The average price has fallen steadily in recent weeks after reaching a record high of $5.016 in mid-June.

As of Wednesday, the national average was $4.010, according to AAA.

While gas prices are falling, the costs of other major inflation drivers such as rent and services remain historically high.

US households may have eased little in July despite headline inflation falling slightly, according to Greg McBride, chief financial analyst at Bankrate. is high.

"To alleviate pressure on households and otherwise bolster the mood of disgruntled consumers, he recommends that from the remainder of 2022 into 2023, wide-spread, significant and sustained price pressures will increase. We need to see a gradual mitigation," McBride said.

His latest CPI data came just days after his July jobs report shattered economists' expectations.  US employers said he added 528,000 jobs in July. That's more than double economists' expectations for him, and his wages rose 5.2% year-on-year.

Gas prices
His AFP via Getty Images

Red-hot job market among investors caused concern. Raise interest rates more sharply to cool the economy enough to keep prices down.

The Federal Open Market Committee, which sets interest rates, has raised its benchmark rate by three-quarters of a percentage point at his two most recent meetings.

Grocery shopper
AFP via Getty Images

Two Fed officials - San Francisco Fed President Mary Daly and Federal Reserve Governor Michelle Bowman said this week thatwe expect a larger-than-usualrate hike until inflation shows signs of a steady decline. "We should consider raising a similar magnitude until we see inflation fall in a consistent and meaningful and sustained manner," Bowman said in a prepared remarks to the Kansas Bankers Association. CNBC.

CME Group datashowed the market following the Fed's At its meeting, it priced in a 67.5% chance of a three-quarter rate hike.

Fed Chair Jerome Powell

Federal Reserve Chairman Jerome Powell said central banks Suggested to closely track bank data indicators. July and September meetings before making decisions.

"We expect continued increases in the federal funds rate target range to be appropriate,"Chairman Powell said after the most recent rate hike in July. rice field. "The pace of these increases will continue to depend on incoming data and the evolving outlook for the economy."

"At the next meeting, an unusually large increase may be appropriate. , it is a decision that depends on the data available at the time,” he added.

President Biden

Meanwhile, President Biden and his team are ahead of the data in a winning experiment did He pointed to falling gas prices as a sign that the administration's policies are working.

Critics argue that Biden's tough stance on domestic energy producers exacerbates the problem.