All eyes today were on the Bureau of Labour Statistics’ latest CPI print, which showed that the prices Americans paid for goods and services rose by the most since 2008, significantly exceeding all forecasts and further complicating the Fed’s ongoing insistence that any and all inflation that arises in the post-pandemic recovery world will only be transitory.
The CPI in June surged 0.9% from the previous month, and skyrocketed 5.4% from year-ago levels, significantly outpacing forecasts put out by economists polled by Bloomberg, whom called for a 0.5% month-over-month gain, and a 4.9% increase from June 2020. Similarly, core CPI, which excludes volatile components such as food and gasoline, rose 4.5% from last year’s level, marking the sharpest increase since November 1991!
Used cars and trucks were responsible for over one-third of the CPI gain in June, rising by 10.5%— the biggest monthly increase for this category on records that date back to 1953. The overall increase in consumer prices was also the result of a strong pricing rebound in categories that are closely tied to the reopening of the US economy, such as accommodations, vehicle rentals, clothing, and airfares.
However, as many economists contend, year-over-year fluctuations in the CPI prints are being distorted by so-called base effects, given that inflation became subdued throughout the spring and summer seasons of last year during the height of the Covid-19 crisis. Despite this, though, inflation prints have been increasingly outpacing expectations, particularly as household spending (largely fuelled by government stimulus) ramps up, leaving manufacturers scrambling to procure already-scarce materials and labour.
Fed Chair Jerome Powell continues to insist that all recent spikes in prices are only transitory and tied closely to the reopening of the US economy. He did, however, recently concede to the possibility that inflationary pressures may, after all, be longer-term. “Bottlenecks, hiring difficulties and other constraints could continue to limit how quickly supply can adjust, raising the possibility that inflation could turn out to be higher and more persistent than we expect,” he said following June’s FOMC meeting.
So, is it still transitory… or not so much anymore?
Information for this briefing was found via the BLS and Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.