With the reduction in costs, the key inflation index reaches 6.8 percent

On a month-over-month basis, prices rose 1% from May to June, faster than the 0.6% increase from April to May and the biggest jump since 2005.

WASHINGTON – The Fed’s closely watched inflation index rose 6.8 percent in June from a year earlier, the biggest increase in four decades, leaving Americans reeling. Without getting rid of the rising costs

Friday’s figures from the Commerce Department underscored continued inflation that is eroding Americans’ purchasing power. reducing their confidence in the economy And the threat to Democrats in Congress ahead of the November midterm elections.

On a month-over-month basis, prices rose 1% from May to June, faster than the 0.6% increase from April to May and the biggest jump since 2005.

The government report also said consumer spending only outpaced inflation, rising 0.1 percent from May to June after adjusting for price changes. Consumer spending has weakened in the face of high inflation. But that itself is helping to boost inflation, as demand remains high for services ranging from plane tickets and hotel rooms to restaurant meals and new and used cars.

Inflation has been rising so fast that despite the pay raises many workers have received, most consumers are lagging behind the pace of living costs.

High inflation and interest rates have also hampered the US economy It decreased for the second consecutive quarter in the April-June quarter. Worries that a recession is on the rise. Two-quarters of the deceleration corresponds to an informal law When the recession beginsalthough Strong recruiting shows that The economy is still strong and not yet in recession.

On Wednesday, the Federal Reserve raised its benchmark interest rate by three-quarters of a point for the second time in a row in its most aggressive move in more than three decades to curb high inflation. Chairman Jerome Powell indicated that the pace of interest rate hikes by the Federal Reserve may slow in the coming months.

However, Powell emphasized that Fed policymakers consider fighting inflation as their top priority. He did not suggest that the weakening economy would cause the Federal Reserve to slow or reverse rate hikes this year or early next year if inflation remains high.

By raising borrowing rates, the Federal Reserve makes it more expensive to get a mortgage, car loan, or business. The goal is for consumers and businesses to borrow, spend, and hire less, thereby cooling the economy and reducing inflation.

During the January-March quarter, consumers increased their spending even after adjusting for inflation. But compared to 1.8% in the January-March period, this figure reached a slight annual growth of 1%. At the same time, sharply higher mortgage rates have dampened the housing market: Sales of existing homes have fallen for five straight months, contributing to a contraction in the economy in the April-June quarter.

On Thursday, President Joe Biden dismissed any notion that a recession had begun. Biden pointed to still-strong job growth, an unemployment rate near a half-century low and a wave of investment by semiconductor companies as signs the economy is still healthy.

Biden also welcomed a deal brokered by Senate Democrats on a smaller version of the Make It Better Act, which many economists say could slow inflation over time. This bill reduces the government’s budget deficit, which curbs inflation by reducing overall demand. It also lowers costs for seniors by allowing Medicare to negotiate the price of certain drugs.

Across the economy, rising inflation was the result of the economy’s rapid recovery from the pandemic recession of 2020. The government’s demand for massive stimulus aid, combined with low rates of consumer borrowing and savings during the pandemic created shortages of goods and labor in factories, ports, and shipping yards, driving up prices. Russia’s war against Ukraine has driven up global prices for energy, food, fertilizer and other commodities.

The Fed tends to monitor Friday’s inflation measure, called the personal consumption expenditures price index, even more closely than the government’s known consumer price index. Earlier this month, CPI reported inflation accelerating to 9.1 percent in June from a year earlier, the highest rate in 41 years.

The PCE index, which tends to show a lower level of inflation than the CPI, is a broader measure of inflation that includes payments made by consumers, including medical services covered by insurance or government programs. The CPI only covers out-of-pocket costs, which have increased further in recent years. Rents, which are rising at their fastest pace in 35 years, also weigh less heavily in PCE than in CPI.

The PCE price index also seeks to explain changes in how people buy when inflation jumps. As a result, it can capture, for example, when consumers switch from expensive national brands to cheaper store brands.

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