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Consumer prices in the US bounded above in June, at the fastest pace in about 13 years, surpassing even the highest forecasts, overshadowing the Federal Reserve’s claim that inflation associated with economic reopening will be purely a “transient” phenomenon.
The Office of Labor Statistics’ consumer price index jumped 0.9% last month from May, 5.4% more than in June 2020. Even eliminating volatile items such as food and energy, the “core” CPI went hot at an annual rate of 4.5 percent.
This is what is driving the jump and it is not:
Used cars
Rising prices for previously owned vehicles drove most of last month’s increase, 10.5% more than the previous month and 45% over June 2020, accounting for a third of the increase of the CPI.
Fed Chairman Jay Powell has repeatedly invoked used vehicle prices as proof of the temporary nature of the current inflation overvoltage, especially in light of the semiconductor shortage that has caused severe disruptions in vehicle production.
“Used vehicle prices are rising due to a kind of perfect storm of very strong demand and limited supply,” he said at the press conference following the Fed’s last meeting on monetary policy. “It’s going up at an incredible annual rate. But we believe that it makes sense for it to stop and, in fact, to reverse over time ”.
Powell has also told investors to pay attention to the “side effects,” which cause year-on-year increases to be disproportionate given the collapse in activity at the height of last year’s pandemic.
Energy prices
Fuel prices have risen this year as Americans remove pandemic restrictions and return to the roads, with last month’s energy costs rising 1.5% from May. From year to year, they increase by 4.5 percent.
Gasoline prices rose 2.5% in June from May. Gasoline demand hit a weekly high before the July 4 holiday, which helped raise national average fuel prices to about $ 3.10 a gallon. This is the highest in almost seven years and 40% more than at this time last year. Prices are even higher in large subway areas, with drivers paying well over $ 4 a gallon at the California bomb.
There may not be much relief on the horizon for consumers. Fuel prices have risen as a result of strong global crude oil prices, which have been surpassed $ 70 a barrel in recent weeks, the highest since 2018.
Travel
The loosening of Covid-19 closures also fueled another month for air fares and hotel prices. Between May and June, airfare prices rose 2.7%, while hotel charges rose 7.9%. Since June 2020, the sectors have experienced increases of 25% and 17% respectively.
Vehicle rental costs have also risen, with consumers facing prices in June that were 5.2 percent higher than the previous month.
“With these increases, the hotel price index is now well above its pre-Covid level, while the airfare price index still has more room to run,” said Ellen Zentner, economist American by Morgan Stanley. “While pandemic-sensitive price increases should begin to contribute less to the global CPI, there is still room for significant contributions.”
Rentals
One of the concerns of economists was the collection of equivalent rent from landlords, which measures why they would rent houses.
As a “larger and more sticky component of the CPI,” according to Aneries Markowska, chief economist at Jefferies, it suggests that inflationary pressures are beginning to expand beyond the areas most sensitive to the pandemic recovery.
Prices rose 0.3% month-on-month in June, in line with the May rise, but were high enough to attract attention. Compared to June 2020, prices are 2.3% higher.
“CPI rents are slowly adapting to reality, as individual properties are only surveyed once every six months,” Markowska said. “Recent gains in market rents point to continuity [or] significant rise in the coming months. Thus, even if the prices of used cars are reversed and downward pressure on the CPI, rents will go in the opposite direction.
Services
Not all sectors of the economy contribute to the price boom. Medical expenses and the cost of household furniture stood in a small number of important sectors where prices fell last month.
But eating out has become much more expensive, with the price of food away from home 0.7% higher than the previous month. Compared to the same time last year, costs are 4.2% higher.
Andrew Hunter, senior US economist at Capital Economics, said the increase provided “clear evidence of severe labor shortages and upward pressure on wages in the leisure sector [are] feeding. Both trends seem to have a lot more to go through. “
As such, economists warn that it is becoming increasingly difficult to rule out the risk that inflation will be more persistent than initially expected.
“The most dramatic increases remain in these reopening categories, so it’s fair to say that most of the increases are transient,” said Stephen Stanley, chief economist at Amherst Pierpont. “But the problem is that when you’re running at this pace, you still have some pretty strong increases. . . and some of the underlying categories are beginning to show acceleration “.
Additional reports from Justin Jacobs
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