Inflation

Domestic inflation has risen faster than expected by either the government or Bank Indonesia (BI), setting a new record since June 2017 as food and transportation prices soar.

Statistics Indonesia (BPS) announced on Friday that the consumer price index (CPI) increased by 4.35 percent year-on-year (yoy) in June, marking a significant acceleration from the 3.55 percent rate reported for the preceding month.

On a month-to-month (mtm) basis, inflation also increased, rising to 0.61 percent in June from 0.4 percent in May, which is still lower, however, than the 0.95 percent seen in April.

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LONDON (AP) – Inflation in countries using the euro set another eye-watering record, pushed higher by a huge increase in energy costs fueled partly by Russia´s war in Ukraine.

Annual inflation in the eurozone’s 19 countries hit 8.6% in June, surging past the 8.1% recorded in May, according to the latest numbers published Friday by the European Union statistics agency, Eurostat. Inflation is at its highest level since recordkeeping for the euro began in 1997.

Energy prices rocketed 41.9%, and prices for food, alcohol and tobacco were up 8.9%, both faster than the increases recorded the previous month.

Demand for energy has risen as the global economy bounced back from the depths of the COVID-19 pandemic and Russia’s invasion of Ukraine made things worse.

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European Union leaders agreed to ban most Russian oil imports by the year’s end, driving a price spike. The 27-nation bloc wants to punish Moscow and reduce its reliance on Russian energy, but it’s also adding to financial pain for people and businesses as utility bills and prices at the pump soar.

Russia also reduced deliveries of natural gas used to power industry and generate electricity last month to several EU countries like Germany, Italy and Austria, on top of cutting off gas to France, Poland, Bulgaria and others.

“Importantly, the oil embargo and gas supply squeeze that unfolded over the month of June have caused energy prices to soar,” ING Bank´s senior eurozone economist, Bert Colijn, wrote in a commentary.

Rising consumer prices are a problem worldwide, with the U.S. and Britain seeing inflation hit 40-year highs of 8.6% and 9.1%, respectively. That has led the U.S. Federal Reserve, Bank of England and other central banks worldwide to approve a series of interest rate hikes to combat inflation.

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Colijn said the eurozone’s latest “ugly inflation reading” adds pressure on the European Central Bank to act quickly.

The ECB is planning its first interest rate hike in 11 years this month, followed by another increase in September. Bank President Christine Lagarde said this week that she wants to move gradually to tackle soaring consumer prices, to avoid stifling the economic recovery, but is leaving the door open for bigger rate hikes in case inflation surges more than expected.

“I don´t think that we´re going to go back to that environment of low inflation,” Lagarde said at an ECB forum Wednesday in Sintra, Portugal. “I think that there are forces that have been unleashed as a result of the pandemic, as a result of this massive geopolitical shock that we are facing now that are going to change the picture and the landscape within which we operate.”

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But central banks run the risk of causing a recession as they make borrowing more expensive.

Inflation in the euro area has been setting monthly records since last year, underscoring how the war’s impact on global energy supplies is making life more expensive for 343 million people.

So-called core inflation was more stable after excluding the volatile energy and food categories. Price increases for goods like clothing, appliances, cars, computers and books held fairly steady at 4.3%, as did prices for services at 3.4%.

The EU data also showed countries neighboring Russia that have been trying to wean themselves off cheap Russian gas are bearing the brunt of rising prices. Annual inflation came in at 22% for Estonia, 20.5% for Lithuania and 19% for Latvia.

Poland, which does not use the euro but is an EU member, reported Friday that inflation rose to 15.6% in June compared with a year earlier, the highest rate in a quarter-century. That was an increase from the annual rate of 13.9% in May.

Analysts noted that the biggest rise in Poland was in gasoline and diesel prices, which went up 46.7% from a year ago. Food prices were up 14.1%.

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Fed chair Jerome Powell

The Federal Reserve will not let the economy slip into a “higher inflation regime” even if it means raising interest rates to levels that put growth at risk, Fed Chair Jerome Powell said on Wednesday in remarks emphasizing the U.S. central bank’s do-whatever-it-takes approach to tempering future price hikes.

“The clock is kind of running on how long will you remain in a low-inflation regime … The risk is that because of the multiplicity of shocks you start to transition into a higher inflation regime, and our job is to literally prevent that from happening and we will prevent that from happening,” Powell said at a European Central Bank conference.

While “there is a risk” the Fed slows the economy more than needed to bring inflation back to the central bank’s 2% target, Powell said, “I would not agree that is the bigger risk. The bigger mistake would be to fail to restore price stability.”

The Fed chief used his appearance at the ECB’s annual conference in Sintra, Portugal, to restate what has now become the U.S. central bank’s guiding policy principal: That regaining control of inflation is necessary even if it means raising interest rates to levels that push the economy towards a recession or that lead to rising unemployment.

New data on Thursday is expected to show that the personal consumption expenditures price index remained more than triple the Fed’s 2% inflation target in May. The lack of progress in bringing inflation back to that level led the Fed earlier this month to raise interest rates by three-quarters of a percentage point, and policymakers have said they are prepared to approve another such increase at the July 26-27 policy meeting.

Fed policymakers now see the target federal funds rate being increased to 3.4% by the end of the year, above the level they feel is needed to begin restricting the economy in the long run and roughly double the current level of between 1.5% and 1.75%.

Powell said the U.S. economy remains “in pretty strong shape,” and, he feels, will be able to cope with tighter credit conditions while avoiding recession or even a significant rise in the unemployment rate.

But the path to that so-called “soft landing” is becoming “significantly more challenging” the longer that high inflation lasts, Powell said, and policymakers are particularly attuned to the risk that public expectations about the future behavior of wages and prices may eventually accelerate as well.

Using language similar to Powell’s, Cleveland Fed President Loretta Mester told the ECB conference that, just as policymakers once assumed the bigger risk lay in stifling inflation too aggressively, and giving up jobs and economic growth in the process, the coronavirus pandemic has shifted the balance of risks.

“The more costly error is assuming inflation expectations are anchored when they are not,” Mester said.

Friday on Fox Business Network’s “Varney & Company,” Rep. Jim Jordan (R-OH) reacted to President Joe Biden blaming Russia for the record-high gas and food prices.

Jordan asserted that “everything costs more because of Joe Biden” and the “Democrats running our government.”

“Well, I mean, he’s wrong like he is on every other issue,” Jordan declared. “I mean, we know why we have inflation. They spent like crazy, they paid people not to work, and they drove up the cost of energy. It wasn’t Russia that did it. It was their crazy policies … that ended the pipeline, their policies that won’t let you drill ANWR, their policies that made it difficult to get leases on federal land, so everything costs more because of Joe Biden.”

He continued, “Food costs more, gas costs more; if you want to buy a new home, it costs more. Everything costs more, and this idea that, you know, somehow, Americans don’t understand. They do. There’s a reason, Ashley, that more than seven out of 10 of our fellow citizens think the country is on the wrong track — because it is under Joe Biden and Democrats running our government, and that’s why I think there’s going to be a big change come this November’s election.”

Follow Trent Baker on Twitter @MagnifiTrent