By Kristin Myers, Editor-in-Chief

What's Happening Today

Grab the ice, because we just got burned. Inflation saw its biggest annual jump in almost 41 years as the government's Consumer Price Index (CPI) surged 9.1% in June compared to last year. Analysts had forecasted that inflation would rise 8.8%, a much smaller increase over May's 8.6% jump. Prices in June rose 1.3% compared to May.

Higher food and energy prices fueled much of the increase, with food prices up 10.4% and gasoline prices up close to 60% from a year ago. Fuel oil (used to heat the water in your home, among other things) was up a whopping 98.5% from the same month in 2021. Excluding volatile food and energy prices, the "core inflation rate" edged up 0.7% in June, up slightly from May 0.6% gain. It was up 5.9% from a year ago, slowing slightly from May's 6% increase. Analysts had expected a lower annual gain of 5.7%. It means that you're not alone if you've been feeling that your dollars aren't stretching as far as they used to when you buy the essentials you need.

Inflation isn't a surprise or a shock to anyone at this point, but its relentless surge to the highest levels since 1981 puts pressure on the Federal Reserve to take a more aggressive approach to containing it. So what can you expect? A short answer is rate hikes and that could make it particularly painful for anyone in the market to buy a house, a car, or those with credit card debt.

But how aggressive exactly? While investors had previously thought an interest rate hike of 75 basis points was in the cards for the Federal Reserve policy meeting in two weeks, traders are betting there is now an over 46% chance of an increase in interest rates by 100 basis points, according to CME Group, based on fed fund futures data.

With mortgage rates expected to only get higher, it's likely that more and more interested homebuyers will choose to sit on the sidelines instead of buying a home, which could pressure sellers into lowering home prices. Mortgage applications to buy a home dropped 4% last week, sinking 18% since the week before as home sales cancellations have risen to their highest rate since April 2020 as more buyers back out.

- Kristin

Editors' Picks

Why You Saw Bigger Bills in June: Inflation Rose to 9.1% (The Balance)

Selling Your Home? Beware of Buyers Who Back Out (The Balance)

IMF Warns It Will Cut Global Growth Forecast Again With 'Darkened' Outlook (Bloomberg)

IMF, Its Objectives, Structure, Functions, Members, Role, History (The Balance)

Beware Wishful Thinking About Inflation and Recession (The Wall Street Journal)

Euro Falls to Equal the U.S. Dollar for the First Time in 20 Years (The New York Times)

How Does Foreign Exchange Trading Work? (The Balance)

Term of the Day

Consumer Price Index

The Consumer Price Index (CPI) is the measurement used by economists for tracking price changes in a typical "basket" of goods and services that urban consumers buy. It reports inflation (rising prices) and deflation (falling prices). Both can hurt a healthy economy.

The Bureau of Labor Statistics (BLS) computes the CPI by taking the average weighted cost of a basket of goods in a given month and dividing it by the weighted cost of the same basket the previous month. It then multiplies this percentage by 100 to get the number for the index.

The Federal Reserve monitors these price changes to ensure economic growth remains stable, and uses monetary policy tools to intervene if it detects too much inflation or deflation.

Off the Charts

The June CPI report revealed what experts believe: inflation isn't letting up anytime soon, with higher prices for food and gasoline fueling much of the rise.