These days, it's abundantly clear that sky-high inflation does not discriminate. In keeping with the inflationary pressures that have taken hold in Canada, inflation is escalating rapidly in the U.S.
It's a story that's all too familiar. From May to June, the consumer price index climbed 1.3%, marking the largest monthly increase since 2005 and bringing the U.S. inflation rate to a staggering 9.1%. U.S. inflation is now at a four-decade high. This is exacerbating the already-steep cost of essentials, including food, housing, and gas, and obliterating any chance that salary gains will catch up with inflation.
Although a hike was anticipated, it exceeded the 1.1% hike and 8.8% year-over-year increase projected by economists. This is the fourth consecutive month where economists were overly optimistic and projections have fallen short of the reality.
As is the case in Canada, there is little relief from inflation and inflationary pressures in sight.
Housing market prices and sales have soared in the U.S. in 2022, and coupled with the fact of low inventory, the market is only poised to get more and more tense. Meanwhile, supply chain issues as a result of the Ukraine-Russia conflict and the COVID-19 lockdown in China are putting a damper on commodities. These types of factors feed into the elevated cost of goods and services available to Americans.
Compared to last month, the price of food has risen by 1%, energy by 7.5%, clothing by 0.8%, new vehicles by 0.7%, gas by 11.2%, medical care by 0.7%, recreation by 0.3%, education by 0.4%, and owners' equivalent rents by 0.7%. In addition, rental rates are up by 0.8% since last month.
Year over year, food is up 10.4%, energy by 41.6%, clothing by 5.2%, new vehicles by 11.4%, gas by 59.9%, medical care by 4.5%, recreation by 4.6%, education by 2.7%, and owners' equivalent rents by 5.5%.
On a brighter note, airfares and hotel rates are starting to see price falls. Another bright spot: the U.S. job market has remained hearty, adding close to 400,000 jobs last month -- but as we know, the job market will likely suffer in tandem with an interest rate hike.
"Rather than cooling down, inflation is heating up," Sal Guatieri, senior economist at BMO Capital Markets, wrote in a commentary note on Wednesday. "While a pullback in gasoline costs in July and reported retail discounting will help tamp down the flames, the broad pressure in the core rate, led by plenty of inertia in rents, suggests inflation may not peak for a while, and might remain stubbornly high for longer than anticipated."
In Canada, the central bank's interest rate decision was announced today. To hedge against inflation, the BoC increased its Overnight Lending Rate by 1% to 2.5%.
It's very probable that the Federal Open Market Committee will make a similar decision at their next meeting later this month. In fact, the talk of the town is of a second 75 basis-point hike. Canadian economists have predicted a chance of mild recession if the policy interest rate is raised much further, and the fear is similar for the U.S. economy.