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Inflation Shows No Sign of Slowing as CPI Hits 40-Year High

With inflation still running rampant, retail apparel prices rose a seasonally adjusted 0.8 percent in June following a 0.7 percent increase in May, and were up an unadjusted 5.2 percent compared to a year earlier, the U.S. Bureau of Labor Statistics (BLS) revealed Wednesday in its Consumer Price Index (CPI) report.

This came as overall CPI increased 1.3 percent in June on a seasonally adjusted basis after rising 1 percent in May, BLS reported. Over the last 12 months, the CPI was up an unadjusted 9.1 percent, the largest 12-month increase since November 1981.

In apparel, men’s wear prices rose 0.3 percent for the month, led by a 1.8 percent uptick in suits, sport coats and outerwear, as well as increases of 0.8 percent in the underwear, nightwear, swimwear and accessories group, and 0.4 percent in pants and shorts. Bucking the trend was shirts and sweaters, with prices down 2 percent.

Boys’ apparel prices were up 1.4 percent last month, girls’ clothing rose 0.5 percent, and the cost of infants’ and toddlers’ apparel increased 1.3 percent.

Women’s wear prices dipped 0.1 percent for the month. Increases of 0.8 percent were seen in dresses, 0.6 percent in outerwear and 0.4 percent in suits and separates, while the underwear, nightwear, swimwear and accessories group posted a decrease of 1.5 percent in June.

In footwear, retail prices rose 1.6 percent for the month and 5.8 percent from June 2021. Hikes of 1.7 percent in men’s, 1.2 percent in boys’ and girls’, and 0.8 percent in shoes were seen.

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Home goods prices also continue to feel inflation pressure. Prices for household furnishings and supplies were up 0.5 percent for the month and 10.2 percent from June 2021. Within the category, prices for furniture and bedding increased 1.1 percent last month and jumped 13.1 percent year over year.

Raw material prices have moderated, but are still elevated from year-ago levels. U.S. spot cotton prices averaged $1.05 per pound for the week ending July 7, according to the U.S. Department of Agriculture (USDA). The weekly average was down from $1.09 the prior week, but up from 83.59 cents per pound in the corresponding period a year earlier, USDA said.

With U.S. consumer prices surging there are now concerns of a recession in the works.

 “We project U.S. GDP will decline for two consecutive quarters, the popular definition of a recession,” Joel Prakken, co-head of U.S. economics for S&P Global Market Intelligence, said.

Prakken said that for the first half of the year, other indicators considered by the NBER Business Cycle Dating Committee—industrial production, employment, hours, and real personal income excluding transfers—all grew. That means that while a recession could be in the works, the U.S. isn’t in one yet.

Wednesday’s CPI report has fed funds traders projecting a 42 percent chance for a 100 basis point rate hike increase at the Fed’s July 27 meeting. They are also projecting a 58 percent chance for a 75 basis point hike.

“After the June meeting the FOMC communicated a more hawkish tone by dropping previous references to policy being consistent with strong labor markets—signaling the Fed is willing to risk a recession to keep inflation in check. In response, we revised our Fed call to show the federal funds rate reaching the restrictive range of 3.25 percent-3.5 percent by year end,” he concluded.

S&P Global Market Intelligence downwardly revised its 2023 U.S. real GDP forecast to 1.3 percent from 1.8 percent, due primarily to expected aggressive monetary tightening. It said that inflation is “unacceptably high, unemployment unsustainably low and inflation expectations have crept above the Fed’s long-run 2 percent objective.”

Recession fears also were a concern after more Americans applied for first-time unemployment benefits last week, representing the fifth consecutive week that claims were over 230,000. Last week’s data showed that 235,000 filed claims for the week ending July 2. Data on filings have a one-week lag time. Last week’s claims rose by 4,000 from the prior week’s data of June 25, and represented the most filings since mid-January. However, claims for the week ending June 25 reflected a spike up by 51,000. The concern gleaned from the recent filings is that the touted tight job market to date might be showing signs of easing.

Economists at Wells Fargo—Sarah House and Michael Puliese—said that what’s troubling from the drivers behind the CPI inflation report was that they were “broad-based and mostly in the ‘core’ components.”

The economists believe that it will take several consecutive monthly inflation readings of slowing price growth before the Fed will begin to believe that it has the current inflationary uptick in check.

“Today’s CPI release offers monetary policymakers zero reassurance that they are on that path at present,” they concluded. The economists said a 75 basis point rate hike should be viewed as the “floor rather than the ceiling” in terms of what the Fed “will do to combat this relentless price pressure.”

The May Producer Price Index from BLS showed U.S. synthetic fiber prices had increased 0.5 percent for the month, while prices for processed yarns and threads rose 1.7 percent and the cost of finished fabrics were up 1.5 percent.

Online prices increased 0.3 percent year-over-year in June, while decreasing 1 percent month-over-month (MoM), according to the Adobe Digital Price Index. While this marks the 25th month of year-over-year inflation online, June was the third month where online price increases slowed.

Key categories including online electronics and apparel saw price decreases, driving down online retail inflation overall. Prices for apparel fell 0.10 in June from a year earlier and significantly down compared to the 9.03 percent yearly increase in May.

In the overall CPI, the increase was broad-based, with the indexes for gasoline, shelter and food being the largest contributors. The energy index rose 7.5 percent over the month, with the gasoline index rising 11.2 percent and the other major component indexes also increasing. The energy index rose 41.6 percent over the past 12 months, with the gasoline index increasing 59.9 percent over that span, the largest 12-month increase since March 1980.

The core index, minus food and energy, rose 0.7 percent in June, after increasing 0.6 percent in the preceding two months. BLS said while almost all major component indexes increased over the month, the largest contributors were from shelter, used cars and trucks, medical care, motor vehicle insurance and new vehicles. The core index was up 5.9 percent over the past 12 months.