The nation’s rate of inflation last month surprised many, but the Federal Reserve says that inflation is transitionary and not cause for alarm.
On July 13, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9% in June on a seasonally adjusted basis after rising 0.6% in May. It was the largest one-month change since June 2008 when the index rose 1.0%.
Over the last 12 months, the all items index increased 5.4% before seasonal adjustment; this was the largest 12-month increase since a 5.4% increase for the period ending August 2008.
The index for used cars and trucks continued to rise sharply, increasing 10.5% in June. This increase accounted for more than one-third of the seasonally adjusted all items increase. The food index increased 0.8% in June, a larger increase than the 0.4% increase reported for May. The energy index increased 1.5% in June, with the gasoline index rising 2.5% over the month.
The index for all items less food and energy rose 0.9% in June after increasing 0.7% in May. Many of the same indexes continued to increase, including used cars and trucks, new vehicles, airline fares, and apparel. The index for medical care and the index for household furnishings and operations were among the few major component indexes which decreased in June.
The all items index has been trending up every month since January, when the 12-month change was 1.4%. The index for all items less food and energy rose 4.5% over the last 12-months, the largest 12-month increase since the period ending November 1991. The energy index rose 24.5% over the last 12-months, and the food index increased 2.4%.
In a Bloomberg News report on the CPI increase in June, Michelle Meyer, head of U.S. economics at Bank of America, said the sharp increase in a few categories fueled the inflation rate hike. “Inflation surprised substantially to the upside in June but, once again, owing to outsized increases in prices in a few categories,” Meyer said. “This reinforces the idea of transitory inflation.”
In the bond market, however, some investors saw the data as putting more pressure on the Fed, the Bloomberg story noted. The Treasury yield curve flattened as the above-forecast reading emboldened traders to bet that the central bank will tighten policy in early 2023.
With inflation, from the Fed “we are told the story is transitory but the increases are going faster and for longer,” John Ryding, chief economic adviser at Brean Capital said on Bloomberg Television. “We just had a monthly increase that was about double what was expected.”
Paul Meeks, portfolio manager, Independent Wealth Solutions Management, LLC, said in a column penned shortly before the release of the CPI numbers for June, that despite the rise in inflation in April and May, “stocks and most other financial assets have powered through it and the post-COVID euphoria has led to a bull market. Those that keep buying believe that this inflation is just a blip, and it will subside once our supply chain inevitably catches up to voracious post-pandemic lockdown demand.”
He later cautioned, “Maybe inflation is not temporary as the bulls claim. Maybe it is structural. I think that there is an infinitesimal chance that we will have 1980-1981-type inflation even if this goes sideways, but if this two-month inflation surge becomes a trend then we could be in serious trouble.”
