Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

U.S. consumer prices post largest gain in 13 years; inflation has likely peaked

EconomyJul 13, 2021 02:33PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: People wearing protective masks shop at Macy's Herald Square following the outbreak of the coronavirus disease (COVID-19) in the Manhattan borough of New York City, New York, U.S., December 26, 2020. REUTERS/Jeenah Moon/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. consumer prices increased by the most in 13 years in June amid supply constraints and a continued rebound in the costs of travel-related services from pandemic-depressed levels as the economic recovery gathered momentum.

With used cars and trucks accounting for more than one-third of the surge in prices reported by the Labor Department on Tuesday, economists continued to believe that higher inflation was transitory, aligning with Federal Reserve Chair Jerome Powell's long-standing views.

The yield on the benchmark 10-year Treasury note briefly shot up before retreating as investors concluded that the U.S. central bank would likely maintain its ultra easy monetary policy stance for a while. Powell will present the semiannual Monetary Policy Report to the U.S. Congress on Wednesday.

"June's CPI numbers looked scary, but once again, we see that it was mainly temporary price increases that pumped up the figures," said Robert Frick, corporate economist with Navy Federal Credit Union in Vienna, Virginia. "Overall, this report is consistent with inflation cooling off later this year."

The consumer price index increased 0.9% last month, the largest gain since June 2008, after advancing 0.6% in May. Economists polled by Reuters had forecast the CPI would climb 0.5%. Used cars and trucks prices accelerated 10.5%. That was the biggest jump since January 1953 when the government started tracking the series. Used cars and trucks have been the major driver of inflation in recent months.

They surged a record 45.2% on a year-on-year basis. A global semiconductor shortage has undercut motor vehicle production. New motor vehicle prices also rose solidly. Demand is mostly being driven by rental companies, desperate to restock after offloading their fleets at the height of the pandemic. Industry data suggest used car and truck prices will soon cool off.

But there are signs that inflation is spreading beyond the sectors at the center of the economy's reopening, with consumers paying more for food, gasoline, rents and apparel last month. That could sharpen criticism of the very accommodative monetary and fiscal policies. COVID-19 vaccinations, low interest rates and nearly $6 trillion in government relief since the pandemic started in the United States in March 2020 are fueling demand, straining the supply chain.

White House officials are cautiously optimistic that the current increase in prices will be transitory, citing a continued drop in forward prices for lumber and other goods that experienced sharp increases as a result of supply chain bottlenecks. Steel capacity had also risen substantially over the past few months, they said.

In the 12 months through June, the CPI jumped 5.4%. That was the largest gain since August 2008 and followed a 5.0% increase in May. Excluding the volatile food and energy components, the CPI accelerated 0.9% after increasing 0.7% in May. The so-called core CPI surged 4.5% on a year-on-year basis, the largest rise since November 1991, after advancing 3.8% in May.

Stocks on Wall Street were mixed. The dollar gained versus a basket of currencies. Longer-dated U.S. Treasury prices rose.

Graphic: Inflation: https://graphics.reuters.com/USA-STOCKS/xklvyxraapg/inflation.png

TRANSITORY INCREASE

The U.S. central bank slashed its benchmark overnight interest rate to near zero last year and is pumping money into the economy through monthly bond purchases. It has signaled it could tolerate higher inflation for some time to offset years in which inflation was lodged below its 2% target, a flexible average.

The Fed's preferred inflation measure, the core personal consumption expenditures price index, jumped 3.4% in May, the largest gain since April 1992. Minutes of the Fed's June 15-16 policy meeting published last week showed "a substantial majority" of officials saw inflation risks "tilted to the upside," and the central bank as a whole felt it needed to be prepared to act if those risks materialized.

Annual inflation rates have been boosted by the dropping of last spring's weak readings from the CPI calculation. June was likely the peak in these so-called base effects.

"The fact that the recent run-up in inflation has been dominated by a few categories should give the Fed leadership continued confidence in their view that it is mostly a transitory increase, a view which the market apparently shares," said Michael Feroli, chief U.S. economist at JPMorgan (NYSE:JPM) in New York.

With nearly 160 million Americans immunized, demand for travel is picking up. Lodging away from home including hotel and motel accommodation shot up 7.9%. Prices for airline tickets rose 2.7%. Though inflation has likely peaked, it is expected to remain elevated through part of 2022, as prices for many travel-related services are still below pre-pandemic levels.

But some factors boosting inflation could last beyond next year. Rents rose solidly in June and could soar as workers return to offices, pulling people back to cities and other urban centers amid the subsiding pandemic in the United States.

Worker shortages, even as millions of Americans are unemployed, are also seen pushing up wages, and keeping inflation elevated. Lack of affordable childcare is keeping some parents at home. The pandemic also forced early retirements, reducing the labor pool.

"It is difficult to argue that everything will be back to normal in a few months," said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. "Rent won't remain tame once the government restrictions on eviction are over. The housing shortages will keep boosting rents."

But the course of inflation will likely be determined by consumers' and businesses' perceptions.

"The big concern is that current high inflation gets built into consumers' and businesses' expectations, leading to higher long-run inflation, as happened in the 1970s," said Gus Faucher, chief economist at PNC Financial (NYSE:PNC) in Pittsburgh, Pennsylvania. "However, the temporary nature of current inflation pressures, and Fed watchfulness, should prevent this from happening."

U.S. consumer prices post largest gain in 13 years; inflation has likely peaked
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (5)
John Klan
John Klan Jul 13, 2021 2:56PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Since Biden has begun turning us into a Banana Republic by giving away trillions of dollars to his constituents we better buy wheelbarrels to carry all the cash it will take to buy a loaf of bread at the store. if there's a loaf left.
Joseph Armour
Joseph Armour Jul 13, 2021 2:03PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Note they did not say reached highest percentage. Of course prices are going to rise at an astonishing rate, they fell at an astonishing rate! Pendulums don't swing up one side, then drop down to stop dead center where it started. What is important is the economy is ramping up toward healthy. That doesn't mean there won't be some uncomfortable swings while it's happening. Take an antacid, you'll be fine.
Ron Raymond
Ron Raymond Jul 13, 2021 1:55PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
although it's true they can manipulate the fake inflation numbers everyone reads, but they can't easily manipulate real inflation without changing interest rates. You can try to keep pumping the market, as the fed will with words, but when reality hits, US well be so bad off it will be regretted. Meanwhile, enjoy the greed.
Lars Hellman
LarsH Jul 13, 2021 1:55PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Peter Schiff will go nuclear with these numbers.
Nick Burns
Nick Burns Jul 13, 2021 8:57AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
where's da bears
Adam Petty
Adam Petty Jul 13, 2021 8:57AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
stocks only go up
Me comment
Me comment Jul 13, 2021 8:57AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
licking their wounds.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email