US consumer prices post the largest increase in 13 years; inflation has probably peaked

  • Consumer prices rise 0.9% in June
  • The CPI accelerates by 5.4% year on year
  • Core CPI increases 0.9%; soar 4.5% year on year
  • Used cars, trucks account for more than a third of the CPI jump

WASHINGTON, July 13 (Reuters) – Consumer prices in the United States rose the most in 13 years in June due to supply constraints and a continued rebound in the costs of travel-related services from levels depressed by the pandemic as the economic recovery gained momentum.

With used cars and trucks accounting for more than a third of the price spike reported by the Labor Department on Tuesday, economists continued to believe the rise in inflation was transient, aligning with long-held views. date of Federal Reserve Chairman Jerome Powell.

The benchmark 10-year Treasury bond yield rose briefly before retreating as investors concluded that the US central bank would likely maintain its ultra-accommodative monetary policy for some time. Powell will present the semi-annual monetary policy report to Congress on Wednesday.

“The June CPI numbers looked scary, but again we find that it was mainly temporary price increases that drove the numbers up,” said Robert Frick, business economist at Navy Federal Credit. Union in Vienna, Virginia. “Overall, this report is consistent with slowing inflation later this year.”

The consumer price index rose 0.9% last month, the largest increase since June 2008, after advancing 0.6% in May. Economists polled by Reuters had forecast the CPI to rise 0.5%. Prices for used cars and trucks accelerated 10.5%. It was the biggest jump since January 1953, when the government started tracking the series. Used cars and trucks have been the main driver of inflation in recent months.

They jumped a record 45.2% on an annual basis. A global semiconductor shortage has undermined the production of motor vehicles. The prices of new motor vehicles have also risen sharply. Demand is mainly driven by rental companies, desperate to restock after unloading their fleets at the height of the pandemic. Industry data suggests that prices for used cars and trucks will cool down soon.

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 clothes last month. This could sharpen criticism of the very accommodative monetary and fiscal policies. COVID-19 vaccinations, low interest rates and nearly $ 6 trillion in government assistance since the pandemic began in the United States in March 2020 are fueling demand, straining the supply chain .

White House officials are cautiously optimistic that the current price increase will be transient, citing a continued decline in futures prices for lumber and other goods that have seen sharp increases due to bottlenecks supply chain bottleneck. Steel capacity has also increased significantly in recent months, they said.

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

Stocks on Wall Street were mixed. The dollar appreciated against a basket of currencies. Longer-term US Treasury prices have increased.

People wearing face masks shop in Macy’s Herald Square after the coronavirus disease (COVID-19) outbreak in the Manhattan neighborhood of New York City, New York, United States, December 26, 2020. REUTERS / Jeenah Moon / File Photo

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The US central bank cut its benchmark overnight interest rate to near zero last year and is pumping money into the economy through monthly bond purchases. He indicated that he could tolerate higher inflation for a period of time to compensate for years in which inflation has remained below its target of 2%, a flexible average.

The Fed’s preferred measure of inflation, the basic personal consumption expenditure price index, jumped 3.4% in May, the largest gain since April 1992. The minutes of the policy meeting June 15-16 Fed report released last week showed that a “substantial majority” of officials saw inflation risks “tilting up,” and the central bank as a whole felt it had to. be ready to act if these risks materialize. Read more

Annual inflation rates were boosted by lower readings last spring of the CPI calculation. June was probably the peak of these so-called base effects.

“The fact that the recent surge in inflation has been dominated by a few categories should give Fed leaders continued confidence in their view that this is primarily a transitory increase, a view the market apparently shares. “said Michael Feroli, managing director of the Fed. American economist at JPMorgan in New York.

With nearly 160 million Americans immune, the demand for travel is increasing. Out-of-home accommodation, including hotel and motel accommodation, increased 7.9%. Air ticket prices rose 2.7%. While inflation has likely peaked, it is expected to remain high until part of 2022, as prices for many travel-related services are still below pre-pandemic levels.

But some factors driving inflation could last beyond next year. Rents rose sharply in June and could skyrocket as workers return to their offices, drawing people to cities and other urban centers amid the declining pandemic in the United States.

Worker shortages, even as millions of Americans are unemployed, also push up wages and keep inflation high. The lack of affordable child care keeps some parents at home. The pandemic has also forced early retirements, shrinking the labor pool.

“It’s hard to say that everything will be back to normal in a few months,” said Sung Won Sohn, professor of finance and economics at Loyola Marymount University in Los Angeles. “Rents will not stay tamed once government restrictions on evictions are lifted. Housing shortages will continue to drive rents up.”

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

“The big concern is that the current high inflation becomes part of the expectations of consumers and businesses, resulting in higher long-term inflation, as happened in the 1970s,” said Gus Faucher, economist in chief at PNC Financial in Pittsburgh, PA. “However, the temporary nature of the current inflationary pressures and the vigilance of the Fed should prevent this from happening.”

Reporting by Lucia Mutikani; Additional reporting by Andrea Shalal; Editing by Paul Simao and Andrea Ricci

Our standards: Thomson Reuters Trust Principles.

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