US Inflation Remains a Threat as Energy Prices Surge Again

Inflation in the United States is predicted to remain a major challenge for the economy, even though the pace of price increases is expected to have slowed in June. The US Bureau of Labour Statistics is scheduled to release the Consumer Price Index (CPI) report for last month on Tuesday morning local time. Many economists project a decline in the headline inflation figure, driven by a drop in energy prices. Based on a Dow Jones survey, the inflation rate is expected to fall 0.2% month-on-month, or to 3.8% compared to last year. However, experts warn that the problem is far from over, especially if energy prices surge again. After the United States and Iran signed a memorandum of understanding in mid-June, oil prices briefly slumped from the US$90 range to around US$70 per barrel. Yet this downward trend has begun to reverse. On Monday, the US crude oil benchmark and Brent were trading significantly higher than their recent lows, with Brent touching US$80 per barrel. Strategists at Société Générale noted that inflation expectations are facing renewed pressure amid rising tensions in the Middle East. Furthermore, critical oil storage hubs have been drained to their lowest levels in decades in an effort to suppress prices. The need to replenish these reserves with hundreds of millions of barrels of oil could trigger further price increases in the future. At the consumer level, petrol prices, which had fallen sharply, are now stalling at US$3.79 per gallon, having risen about 8 cents since last Monday. This situation is exacerbated by slowing wage growth; average hourly earnings rose only 3.5% in June, well below May’s inflation rate of 4.2%. Economists at Deutsche Bank have warned of ‘price stickiness’ during the downward trend, predicting that declines in airfares and delivery services will be very limited in the latest report. Additionally, the yield on 10-year bonds has risen back to 4.57%, directly impacting consumer lending rates. A new factor driving inflation is the massive global expansion of artificial intelligence systems and data centres. Technology giants are racing to purchase memory components, causing a surge in prices for key hardware. Apple even raised the prices of many of its flagship products last month. Core inflation, which excludes volatile food and energy categories, is expected to fall only slightly to 2.8% from 2.9% in May. This persistently high figure is fuelling concern among Federal Reserve policymakers. Fed officials have indicated that if core inflation readings remain hot, they will need to consider raising interest rates in the near future.