By Nathalie Voit

The pace of inflation exceeded market expectations in June, hitting a new 40-year high.

According to newly released data from the Department of Labor, consumer prices surged 9.1% year-over-year last month. This was the hottest reading since November 1981 and significantly higher than the general Dow Jones consensus, which placed the annual inflation rate in June at 8.8%.

The government said the price surges were broad-based, with the energy sector contributing to a majority of the all-items increase in June at 7.5%. Gasoline, for instance, spiked 11.2% on the month, while energy commodities climbed by 11.4%.

Year-over-year, the cost of gasoline soared 59.9% in June, while energy items posted a 60.6% gain.

Meanwhile, food prices rose 1.0% in June to reach 10.4% on a yearly basis, while shelter costs rose 0.6% over the month and 5.6% annually.

Core inflation, which omits the volatile food and energy categories, rose 0.7% last month and 5.9% over the year.

Analysts had projected core CPI to rise by 5.7% in June. Instead, core inflation barely budged from May’s 6.0% annual reading.

Rental costs also increased in June as rent prices surged 0.8%, the most since April 1986.

New vehicle prices continued to escalate, posting gains of 0.7% for the month and 11.4% for the year. Used vehicle prices shot up 1.6% in June and 7.1% from one year ago.

Month-over-month, consumer prices rose 1.3%, up from 1.0% in May.

Wednesday’s report spells bad news for the Federal Reserve and the stock market. Although the market had been expecting consumer inflation to accelerate in June from May’s 8.6% reading, the larger-than-expected gains have put policymakers on edge.

After dismissing consumer worries over inflation for much of 2021, central bank officials have been working around the clock to curb the not-so-temporary price increases. Board members on June 15 hiked interest rates by 75 basis points, the largest hike of the benchmark lending rate in almost three decades. The move was announced five days after the May CPI report was released.   

What Wednesday’s news entails for future Federal Reserve policy is unclear. However, the Fed is expected to keep raising the key interest rate in light of record-high inflation.