Inflation went higher than expectations in June as the price index rises 5.4%


July 14, 2021: -Inflation continued its rapid increase in June, which rose at its fastest pace in around 13 years between an ongoing burst in used vehicle costs and increases in both food and energy, the Labor Department reported on Tuesday.

The consumer price index climbed 5.4% from a year ago, the most significant jump since August 2008, just the worst of the financial crisis. Economists surveyed by Dow Jones expected a 5% gain.

Stripping out volatile food and energy prices, the core CPI increased 4.5%, the sharp move for that measure from September 1991 and well above the estimate of 3.8%.

Every month, headline and core prices both increase 0.9% against 0.5% estimates.

Stock market futures decreased following the report, while government bond yields, which have been down precipitously, were mixed.

A separate report from the department’s Bureau of Labor Statistics noted that the big monthly hike in consumer prices translated into negative real wages for workers. Actual average hourly earnings decreased 0.5% for the month, as a 0.3% increase in average earnings was more than negated by the CPI increase.

Inflation has been escalating due to several factors, that includes supply chain bottlenecks, high demand as the Covid-19 pandemic eases, and year-over-year comparisons to the time when the economy was struggling to reopen in the early months of the crisis.

Policymakers at the Federal Reserve and the White House expect the current pressures to start to ease. However, central bank officials have acknowledged that inflation is more substantial and perhaps more durable than anticipated.

Much of the price pressures have come from sectors mainly influenced by the shutdown – used car prices, airfares, and transportation costs, to name three.

That was the case again in the previous month, as used car and truck prices leaped 10.5%, accounting for above one-third of all the price index’s gains. For the 12 months, used car and truck prices have burst 45.2% higher.

Food and energy prices also were up substantially, which rose 0.8% and 1.5%, respectively. The gasoline index increases 2.5% in June and is up 45.1% over the past 12 months. Food also rose 2.4% in the past year.

However, housing and shelter prices continue to increase, adding fuel to the belief that inflation could stick around for a while.

Shelter makes up nearly one-third of the CPI and rose 0.5% for the month and 2.6% from June 2020.

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