US consumer prices increased by the most in nearly eight years in June as businesses reopened, but the underlying trend suggested inflation would remain muted and allow the Federal Reserve to keep injecting money into the ailing economy. The Labor Department said on Tuesday its consumer price index increased 0.6% last month, the biggest gain since August 2012, after easing 0.1% in May. The increase, which ended three straight months of declines, was driven by rises in the prices of gasoline and food.
In the 12 months through June, the CPI climbed 0.6% after gaining 0.1% in May, which was the smallest year-on-year rise since September 2015.
Economists polled by Reuters had forecast the CPI increasing 0.5% in June and advancing 0.6% year-on-year.
Businesses have reopened after shuttering in mid-March to slow the spread of COVID-19. But new cases of the respiratory illness have surged in large parts of the country, prompting some states to dial back or pause reopenings.
The economy slipped into recession in February. The Fed is pumping money into the economy through extraordinary measures, including large-scale asset purchases and funneling loans to firms. Separately, the government has provided nearly $3 trillion in fiscal stimulus, contributing to a record monthly budget deficit in June.
There have been fears that the unprecedented stimulus could stoke inflation. But with a record 33 million people on unemployment benefits, economists expect inflation is likely to remain benign. Excluding the volatile food and energy components, the CPI rose 0.2% in June after slipping 0.1% in May. Increases in the costs of apparel and healthcare were offset by a moderation in rental inflation.
The so-called core CPI had dropped for three consecutive months for the first time since the series started in 1957. In the 12 months through June, the core CPI increased 1.2%, matching May’s gain. The Fed tracks the core personal consumption expenditures (PCE) price index for its 2% inflation target. The core PCE price index increased 1.0% on a year-on-year basis in May, the smallest advance since December 2010. June’s core PCE price index data will be released at the end of this month. But infections have continued to soar, passing 900,000 on Monday with almost 24,000 deaths, according to health ministry figures that many experts say underplay the severity of the situation.
Mumbai and the capital New Delhi have been the worst hit so far but the southern city of Bangalore, home to more than 13 million people, has emerged as a new hotspot. A seven-day lockdown in the city is set to begin at 8:00 pm (1430 GMT), the government announced earlier. Transport will be banned except for emergencies and only shops selling essential items allowed to open. Firms in Bangalore’s lifeblood IT sector handling the back-office operations of global corporations can operate, but with only 50% of staff allowed on premises at any one time.
A new lockdown has also been imposed in the western city of Pune, which on Monday reported a record 1,333 new infections, taking the total to 40,000 with 23 deaths. Other states including Uttar Pradesh, India’s most populous with 200 million inhabitants, Tamil Nadu and Assam have also introduced new restrictions.
Kerala in the south, which earlier won plaudits for its handling of the pandemic, has also implemented tight controls in around a dozen areas including state capital Thiruvananthapuram until July 23.
The state has seen cases shoot up to over 8,000 following the return of people from Gulf countries where Keralites make up a substantial proportion of foreign workers. Kerala’s communist-led government last week extended until July 2021 rules on the wearing of masks, social distancing and limiting numbers of people at weddings and funerals. In a glimmer of hope, Delhi, which apart from several “containment zones” has seen activity return to normal, on Monday reported 1,246 new infections — the lowest in 35 days.