Inflation numbers for June have been much higher than expected with some Fed officials hinting that the upside risks are increasing.
On Tuesday, July 13, the US Labor Department released the inflation numbers for June 2021. The Consumer Price Index (CPI) has shot up 5.4% over the last year with inflation surging at the fastest rate in 13 years.
Consumer Price Index Changes
Economist at Dow Jones had predicted a 5% surge amid a surge in the used vehicle costs as well as food and energy costs. While excluding the volatile food and energy prices, the core CPI surged by 4.5%. This is well above the estimated 3.8% and the biggest move in the last two decades. Speaking to CNBC, Sarah House, senior economist for Wells Fargo’s corporate and investment bank said:
“What this really shows is inflation pressures remain more acute than appreciated and are going to be with us for a longer period. We are seeing areas where there’s going to be ongoing inflation pressure even after we get past some of those acute price hikes in a handful of sectors.”
Additionally, the Bureau of Labor Statistics also released a report stating that this spike in CPI caused a negative impact on the real wage for workers. In June, there was a 0.3% jump in the average hourly earnings of the workers. However, considering the CPI real average hourly earnings dropped 0.5%.
Fed Acknowledges Inflation Jump
With the COVID-19 pandemic easing, there’s been an extraordinary high consumer demand in the market. This coupled with the supply-chain bottlenecks is fueling further inflation. Despite this, policymakers at the White House and the Federal Reserve remain confident that the inflation pressure shall ease soon.
Though some Fed officials have also acknowledged the inflation jump. Besides, they stated that inflation is stronger and more durable than anticipated. Speaking to CNBC, a senior economic advisor at the White House said:
“We think it’s very important to strip out the pandemic-affected sectors. We’re not saying that those pandemic-related risks aren’t real. We’re not ignoring them, but we’re also trying to put them into a longer-term perspective, because the underlying price index outside the pandemic-affected areas is quite tame.”
On Wednesday and Thursday, Federal Reserve Chairman Jerome Powell will speak before the House and Senate panels. We are also likely to hear his views on inflation. The Fed Chairman remains steadfast about inflationary pressure being transitory, however, a Fed report indicated that the upside risks are real. Wells Fargo’ Sarah House said:
“This does increase some of the jitters among some [Fed] members. We already saw they were getting more worried about inflation at the June meeting. If you parse through this, there are a number of areas where inflation is picking up and likely has staying power. That’s going to make some folks nervous.”
Sectors influenced by the shutdown have contributed the most to this price pressure. The used cars and truck prices surged 10.5% contributing one-third of the CPI gains. On a 12-month period, the used cars and truck prices have shot up 45%.
Food and energy are also substantially up by 0.8% and 1.5%. Housing and shelter prices also surged hinting that inflation could stay around for a while.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.