U.S. inflation roared again to a fresh four-decade high last month, likely strengthening the Federal Reserve’s resolve to aggressively raise interest rates that risks upending the economic expansion.

The consumer price index rose 9.1% from a year earlier in a broad-based advance, the largest gain since the end of 1981, Labor Department data showed Wednesday. The widely followed inflation gauge increased 1.3% from a month earlier, the most since 2005, reflecting higher gasoline, shelter and food costs.

Economists projected a 1.1% rise from May and an 8.8% year-over-year increase, based on the Bloomberg survey medians. This was the fourth-straight month that the headline annual figure topped estimates.

The so-called core CPI, which strips out the more volatile food and energy components, advanced 0.7% from the prior month and 5.9% from a year ago, above forecasts.

The S&P 500 index opened lower while shorter-term Treasury yields rose and the dollar strengthened.

The red-hot inflation figures reaffirm that price pressures are rampant and widespread throughout the economy and taking a bigger toll on real wages, which are down the most ever in data back to 2007. The inflation data will keep Fed officials on an aggressive policy course to rein in demand, and adds pressure to President Joe Biden and congressional Democrats whose support has slumped ahead of midterm elections.

Risks Ahead
Several factors such as housing stand to keep price pressures elevated for longer. Geopolitical risks including Covid lockdowns in China and Russia’s war in Ukraine also pose risks to supply chains and the inflation outlook.

“Rather than cooling down, inflation is heating up,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note. “While a pullback in gasoline costs in July and reported retail discounting will help tamp down the flames, the broad pressure in the core rate, led by plenty of inertia in rents, suggests inflation may not peak for a while, and might remain stubbornly high for longer than anticipated.”

Fed policy makers have already signaled a second 75 basis-point hike in interest rates later this month amid persistent inflation as well as still-robust job and wage growth. Even before the data were released, traders had already fully priced in such a move. Now, they also see around a one-in-three chance that it could be a full percentage point.

The higher and faster that the Fed goes increases the risks for a potential U.S. recession, which several economists see in the next 12 months. Even so, the labor market has held strong, adding nearly 400,000 jobs last month.

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