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Economic Report: U.S. inflation is still rising. Can it reach 9%?

Has the biggest increase in U.S. inflation in 40 years reached a peak? Not yet. Consumer prices rose sharply again in June and the yearly increase in the cost of living might surge to as high as 9%.

The consumer price index is expected to show a large 1.1% jump in June when the report is released Wednesday morning. The CPI comes out at 8:30 a.m. Eastern.

The increase in inflation over the past year, meanwhile, is forecast to climb to 8.8% from 8.6%.

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economists believe it even could reach 9% for the first time since November 1981.

Many economists had expected inflation to hit a zenith a few months ago, but the cost of gas shot up again. The average U.S. price of a gallon of regular gas rose about 11% in June and topped $5 for the first time.

The cost of other staples have also risen sharply. Higher prices for food, rent, new cars and health care have also contributed to the uptick in inflation.

If food and gas are removed from the equation, so-called core consumer prices likely rose a smaller 0.5% in June, economists predict.

The Federal Reserve bases its decision on whether to raise interest rates on the increase in the overall cost of living, but it views the core figure as a better way to assess inflationary trends. Or what inflation will look like a year from now.

In a welcome sign, the increase in the core CPI is expected to slip for the third month in a row to 5.7%. The core rate peaked at a four-decade of 6.5% in March.

Yet while there are lots of signs emerging that price pressures are easing, inflation more broadly is unlikely to cool off much anytime soon. Economists say the rate of yearly inflation could remain in the 8% range into the early fall.

ING chief international economist James Knightley said inflation will be “quite sticky” in the next four to six months due to ongoing supply and labor shortages. Companies will also continue to try to pass their own rising costs onto customers.

The persistence of high inflation is widely expected to spur the Fed to raise its benchmark short-term interest rate by 0.75 percentage points in July. That would lift the so-called fed funds rate to a range of 2.25% to 2.5%.

After keeping the short-term rate near zero during the pandemic, the central bank is on track to push it well above 3% by year’s end.

Higher rates slow the economy and thus inflation by making it more expensive to buy a big-ticket item such as a house or car or to take out a business loan. As a result, more and more economists see a recession taking place in the next year or two.

The Biden administration, for its part, is seeking to tout its efforts to combat high inflation as its poll numbers fall to fresh lows ahead of the fall elections.

White House economic aides this week have spotlighted the decline in gasoline prices and other signs of easing price pressures.

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