The PPI index, which measures the wholesale prices of goods that are eventually passed down to consumers, rose 0.4 percent in April and 0.9 percent in May.
For June, 75 percent of the advance in the index for final demand was due to a 2.4 percent rise in prices for final demand goods, with the index for final demand services increasing by 0.4 percent.
Prices for final demand of groceries, energy, and trade services moved up 0.3 percent in June after advancing 0.4 percent in both May and April.
The index for final demand for groceries, energy, and trade services rose 6.4 percent for the 12 months ending in June.
This comes one day after the Consumer Price Index showed inflation hitting 9.1 percent in June—the highest level since 1981, and well above expected estimates.
The new index figures are another sign that prices are spiraling out of control, adding pressure on the Federal Reserve to move aggressively to rein in inflation at its next meeting on July 26–27, at which it is expected to raise its target rate by 75 t0 100 basis points.
The number of analysts who think that the central bank will act aggressively and raise interest rates by a full percentage point has gone up dramatically.
Nomura, the Japanese financial services company, also predicts that the Fed will raise rates by 100 basis points, after yesterday’s CPI inflation reading.
The central bank hiked its interest rate target in June, by three-quarters of a percentage point for the first time since 1994, well above the Fed’s typical rate hike of a quarter of a percentage point, or 25 basis points.
U.S. GDP contracted at a 1.6 percent annual rate in the first quarter, while the Atlanta Fed’s GDPNow tracker last week predicted that GDP growth will decrease for another straight quarter, indicating that the country is already in a recession.
Two straight quarters of contraction falls well into the definition of a recession, according to The National Bureau of Economic Research and many economists.
There are concerns that an aggressive move by the Fed will push the economy into a recession if it is not in one already.
As inflation grows higher, the Fed is expected to continue to take a more hawkish approach to monetary policy, thus drastically slowing down growth.
The Fed believes that it has room to maneuver, as the expected hike would only raise the fed funds rate to 2.5–2.75 percent, since the unemployment rate remains at near historic lows at 3.6 percent and interest rates are still at a historic low.
Meanwhile, the Bank of Canada announced on July 13, that it would raise interest rates by 100 basis points after previous forecasts predicted a 75-basis-point increase.
