Blame it on the Federal Reserve Board, if you must. But gas and grocery prices aren’t about to come down soon.
The board is about to meet another time later this month. And chances are, they will be clamoring for an aggressive 100-base-point interest rate hike.
The reason is fairly simple. The June inflation report released Wednesday showed consumer prices soar to 9.1%, although US President Joe Biden insists the data is outdated. The next Fed meeting is scheduled for July 26-27.
Biden is right. The average price of gas in the US has fallen below its peak of $5 a gallon since last month.
But the rise in food and gas prices the world over is largely due to Russia’s invasion of Ukraine. The two countries accounted for 24% of global wheat exports, 57% of sunflower seed oil exports and 14% of corn exports between 2016 and 2020.
The spike in oil prices was a result of Western sanctions that took Russian energy supplies off the global market.
The Fed “can’t do anything about supply shocks,” a Reuters report said.
Last month, the Federal Reserve raised its benchmark overnight interest rate by 75 base percentage points—its biggest hike since 1994.
Reason
The hike is aimed at bringing down the worst inflation in 40 years.
Simply put, Fed chair Jerome Powell is trying to avoid a 1970s-style price spiral.
The Fed is trying to make borrowing so expensive that consumers and businesses curb spending, hence cooling off demand and holding down prices.
But the relief from inflation won’t be immediate, warn experts.
‘Uncomfortable period’
It will mean more pain for consumers battling record-high prices for gas, groceries, and almost everything else.
“It’s going to be an uncomfortable period where inflation is running high and borrowing costs are also going to rise,” says Oxford Economics’ Kathy Bostjancic.
Mortgage rates in the interest-rate-sensitive housing market are going to go up, says Matthew Pointon, a property economist at Capital Economics, adding that those rates won’t peak before the middle of next year.
Outstanding loans
And if you have outstanding loans on your car or your credit card without fixed interest rates, get ready to dig deeper into your pockets.
Credit card rates and auto loans typically go up when the Fed’s policy rate rises.