The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent in June on a seasonally adjusted basis after rising 0.6 percent in May, the U.S. Bureau of Labor Statistics reported today. This was the largest 1-month change since June 2008 when the index rose 1.0 percent. Over the last 12 months, the all items index increased 5.4 percent before seasonal adjustment; this was the largest 12-month increase since a 5.4-percent increase for the period ending August 2008. The index for used cars and trucks continued to rise sharply, increasing 10.5 percent in June. This increase accounted for more than one-third of the seasonally adjusted all items increase. The food index increased 0.8 percent in June, a larger increase than the 0.4-percent increase reported for May. The energy index increased 1.5 percent in June, with the gasoline index rising 2.5 percent over the month…. The all items index rose 5.4 percent for the 12 months ending June; it has been trending up every month since January, when the 12-month change was 1.4 percent. The index for all items less food and energy rose 4.5 percent over the last 12-months, the largest 12-month increase since the period ending November 1991. The energy index rose 24.5 percent over the last 12-months, and the food index increased 2.4 percent.President’s Biden’s Council of Economic Advisors clearly were worried about the perception of higher inflation, as they sent off a series of tweets explaining some of the reasons for the jump in CPI.
Prices of pandemic-affected services rose again this month and contributed 11 basis points to the core inflation increase in June. 3/ pic.twitter.com/WboFFbUyju— Council of Economic Advisers (@WhiteHouseCEA) July 13, 2021
While some of this is definitely spin, I do think it's appropriate to look at the 2-year trend in this case, because this accounts for the drop/flattening in prices that existed in the first few months of COVID and the snapback since then. You put that together and you get a rise of 6.1% between June 2019 and June 2021, or 3% a year. Slightly elevated but not horrifying, and June 2020 is when prices started to rebound off their COVID bottoms, so we should have a more accurate picture of where this is going next month. The stock and bond markets responded to the news of higher inflation with maybe one raised eyebrow, if not an outright shrug.
The year-over-year numbers were impacted by base effects from last year, although the impact of base effects is starting to move out of the data. Starting in July, year-over-year changes in CPI will be calculated off of a price level that is above the pre-pandemic level. 5/— Council of Economic Advisers (@WhiteHouseCEA) July 13, 2021
Markets, which have in recent months grown wary of rising prices and whether they will cause the Fed to act, appeared to keep their cool over inflation on Tuesday. The S&P 500 was essentially unchanged shortly after the open and the 10-year Treasury yield actually fell, not the reaction one would expect from such a hot inflation report on the service.Although the 10-year yield did rise later in the day, it's still well below where it was 3 months ago, and the 3-month note is below where it was at the start of 2021. This is despite inflation being on the rise over that time period.
But I do sense that there are inflationary effects from the adjustments that the economy is making due to the post-COVID world. There seems to be a huge inability for the stimulated increase in demand to be matched by restaurants and other businesses to hire back enough staff after large layoffs when the pandemic first broke out. The June jobs report revealed that hourly wages continue to rise higher, and this number never snapped back down, even as previously lower-wage jobs came back in the 2nd half of 2020.
Here are the items really driving up inflation:— Heather Long (@byHeatherLong) July 13, 2021
Car rental 87.7% (y/y change)
Used cars 45.2%
Laundry machines 29.4%
Fresh fish 6.4%
New cars 5.3%
Rent (OER) 2.3%
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