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Used cars are still pushing consumer costs above all estimates

Prices paid by US consumers soared the most in June since 2008, surpassing all expectations and testing the Federal Reserve’s commitment to sticking to super-easy financial support for the economy.

The consumer price index rose 0.9% in June, up 5.4% from the same month last year, according to data released on Tuesday by the Ministry of Labor. Excluding volatile food and energy components, the so-called core CPI has risen 4.5% since June 2020, the greatest progress since November 1991.

Used cars accounted for more than one-third of the rise in the consumer price index, officials said. The oversized increase was also driven primarily by price rebounds in categories related to the broader resumption of the economy, including hotel stays. Car rental, Apparel, airfare.

The expectation that these increases will normalize helps explain the Fed’s view that inflation is temporary.

Michelle Meyer, Head of the US Economic Sector at Bank of America, said: “This reinforces the idea of ​​temporary inflation.”

However, in the bond market, some investors saw the data putting more pressure on the Fed. The Treasury yield curve has flattened as the above forecasts have made traders bold to bet on central banks to tighten their policies in early 2023.

John Riding, Fed’s chief economic adviser at Bloomberg Television at Bloomberg Television, said that with inflation, the Fed said, “The story is said to be temporary, but the increase is faster and longer. It continues. ” “The monthly increase was about twice what we expected.”

A median forecast from the Bloomberg Economist Survey called for an overall CPI increase of 0.5% from the previous month, up 4.9% year-on-year. S & P 500 declined after reporting.

The report also could add to the challenge of the Biden administration getting Congress to approve trillions of dollars in additional fiscal spending over the next few years. Republicans have emphasized the surge in inflation as a reason for rejecting such new plans.

White House officials said the report was in line with the government’s view that inflation spikes were associated with bottlenecks after the economy resumed.

Year-over-year figures have shown a significant increase in recent months due to the so-called basic effect. The CPI retreated from March to May last year during the pandemic blockade. Annual numbers are expected to peak, but it is not yet clear how much mitigation will occur in the coming months.

In the three months to June, core CPI increased at an annual rate of over 8%, the fastest since the early 1980s.

With household spending on commodities, partly backed by government stimulus, businesses are struggling to process orders in the face of material and labor shortages. Its dynamics contribute to higher costs, which often affect consumer prices.

Meanwhile, the lifting of pandemic regulations is driving the purchase of services such as travel and transportation, which is another factor in inflationary pressure.

Prices paid for new and used cars have risen from a record high a month ago. However, each of these categories accounts for less than 4% of the total CPI.

Food costs away from home rose 0.7% month-on-month, the largest increase since 1981.

PepsiCo Inc. on Tuesday’s earnings report. And companies such as Conagra Brands Inc. have focused on supply chain cost pressures. Konagra has already raised prices and said it will continue to raise prices, saying that these price increases will ultimately increase the company’s profit margin.

Federal Reserve Board Chair Jerome Powell said the recent rise in prices was the result of a temporary resumption, but recently acknowledged the possibility of long-term inflationary pressure. Persistent constraints on the production pipeline increase the risk of accelerated consumer price inflation as wages rise.

Economists are watching if price pressures spread to categories other than those currently recovering after the pandemic blockade.

Considered a more structural component of the CPI, shelter costs, which account for one-third of the total index, rose 0.5% last month, the highest since October 2005. This increase is due to a 7.9% increase in hotel stays.

Wage growth has risen steadily throughout the second quarter, but at the expense of rising consumer prices. Inflation-adjusted average hourly wages fell 1.7% in June after falling 2.9% a month ago, another data showed Thursday.

National Federation of Independent Business Association Tuesday figures show that 47% of small business owners, who have the largest share since 1981, reported high selling prices in June.

Consumers expect higher prices in the short term. Next year’s median inflation expectations rose to a series of up to 4.8% in June, according to the Federal Reserve Bank of New York’s Consumer Expectations Survey.

© 2021 Bloomberg LP Used cars are still pushing consumer costs above all estimates

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