Prices climbed by 6.8 percent in the year through June, the Federal Reserve’s preferred inflation gauge showed, and even a measure that strips out food and fuel picked up notably on a monthly basis.
Inflation as measured by the Personal Consumption Expenditures index jumped by 4.8 percent over the past year after stripping out food and fuel, which economists do to get a sense of underlying trends, a slightly larger increase than the 4.7 percent increase economists in a Bloomberg survey had expected.
Those data are likely to keep the central bank on track to raise rates more as it tries to cool down the fastest inflation in decades. Fed officials made their second supersized rate increase in a row — three-quarters of a percentage point — this week as they try to slow down the economy by making money more expensive to borrow.
A separate report showed that wages climbed briskly. The Employment Cost Index climbed by 5.1 percent in the second quarter compared to the same period last year, and the index’s measure of wages and salaries also picked up.
While most people are not seeing their pay climb quickly enough to keep pace with rapidly rising prices, wage growth is proceeding rapidly enough that they might make it difficult for price increases to moderate back toward the Fed’s 2 percent annual target. Companies are unlikely to stop raising prices when their labor bills are increasing rapidly, because doing so would eat into and possibly wipe out their profits.
The combination of very quick price increases and brisk pay growth is likely to keep the Fed in inflation-fighting mode. Jerome H. Powell, the Fed chair, said during his news conference this week that officials could raise interest rates by three-quarters of a point again at their next meeting in September, though he did not commit firmly to such a move, given that the Fed has nearly two months between now and their next rate decision.
Headline inflation probably cooled in July, because gas prices have dropped sharply this month. It is not yet clear how durable the change will prove, though, and central bankers and consumers have been watching prices increase across a broad array of goods and services beyond just fuel.
Inflation has been high for more than a year, and central bankers are focused on trying to restrain demand and drive it lower before it becomes ingrained in the American economy. Once consumers and businesses have learned to expect and accept rapid price increases, it may be harder to quash them.
“I really do think that it’s important that we address this now and get it done,” Mr. Powell said at his news conference this week, later adding that “we are assigned uniquely and unconditionally the obligation of providing price stability to the American people. And we’re going to use our tools to do that.”