Yet inflation is climbing faster than some policymakers predict, reflecting the bumpiness of the economic recovery. Republicans and some economists say the price increases are already too high for comfort and that the Fed will be too late once it decides to rein in inflation by raising interest rates.
Some businesses are already feeling strained. On Friday, Procter & Gamble predicted slower sales and historically high prices for materials and transportation, in large part due to inflation and the ongoing pandemic. In an interview with the Wall Street Journal, chief executive David Taylor said that “commodities and cost pressure have escalated significantly.”
Still, the June inflation figure was not much higher than the level in May, when prices rose by 3.9 percent compared with the year before.
Personal income ticked up slightly, 0.1 percent, from May and June. The Bureau of Economic Analysis said the slight rise reflected increasing wages and salaries for workers. In recent months, employees have seen some of the fastest wage growth in decades as restaurants, sports stadiums and factories struggle to rehire workers and try to lure people back on the payrolls.
Consumer spending rose 1 percent from May to June as vaccinations helped people step back into their old routines — and unleash pent-up savings.
The latest inflation data adds to understandings of how the economy is emerging from the pandemic recession. By many measures, things are moving in the right direction. The U.S. economy grew at an annual rate of 6.5 percent between April and June, marking a full recovery from the pandemic.
Earlier this month, the Bureau of Labor Statistics released a different snapshot of June inflation. That measure of a different group of goods rose by 5.4 percent compared with a year ago. That index tends to be higher than the figures in Friday’s release, which is the inflation benchmark watched closely by the Fed.
At a news conference Wednesday, Fed Chair Jerome H. Powell said that as temporary supply-chain issues abate, inflation will fall closer to the Fed’s 2 percent annual target. But the Fed is watching closely to see which sectors continue to see prices climb and whether people’s expectations around inflation morph over time, too.
“To the extent people are implementing price increases because raw materials are going up or labor costs or something’s going up,” Powell said, “you know, the question really for inflation really is: Does that mean they’re going to go up the next year by the same amount?”