US Consumer Price Index-June 2021: key findings
As reported by the U.S. Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent in June on a seasonally adjusted basis after rising 0.6 percent in May. This was the largest 1-month change since June 2008 when the index rose 1.0 percent. Over the June 2020/2021 year-on-year period, the All items index increased 5.4 percent. It was the largest 12-month increase since August 2008.
The price index for all items less food and energy increased by 0.9 percent in June after rising 0.7 percent in May. Perhaps more tellingly, the index for all items less food and energy rose 4.5 percent over the last 12 months, the largest 12-month increase since November 1991.
The index for used cars and trucks sharply increased for the third consecutive month, rising 10.5 percent in June. This was the largest monthly increase ever reported for this index, which was first published in January 1953. This increase accounted for more than one-third of the seasonally adjusted all items increase. On a year-on-year basis, the index for used cars and trucks increased 45.2 percent, the largest 12-month change ever reported for that index.
Looking back in historical perspective, core consumer prices increased at a pace last seen in the early 1990s. At that time, the end of the Cold War, the reduction of the US twin deficits and China’s accelerated transition to a market economy all contributed to fuel a secular desinflationary trend. This time around, some analysts argue we have entered the age of slowbalization and increased rivalry between major global economic powers – in a nutshell, this is what we call multipolarity. Trade frictions are likely to increase in the future and governments’ addiction to monetary financing is fuelling the debate about monetary debasement amid a tech-driven revolution in the financial and monetary spheres.
However, as it is said in The Hitchhiker’s Guide to the Galaxy: Don’t panic! An analysis of price changes by broad expenditure category and by item versus the pre-pandemic baseline helps making sense of the underlying dynamic and dispel some misconceptions.
A review of consumer prices by expenditure category on a YoY vs. % Pre-COVID baseline
Transportation related goods and services have contributed most to the increase in headline and core inflation figures. As reported by the BLS, the index for new vehicles rose 2.0 percent in June, that index’s largest 1-month increase since May 1981. The motor vehicle insurance index increased 1.2 percent over the month. The index for airline fares rose 2.7 percent in June after increasing 7.0 percent the previous month.
In order to make sense of the underlying momentum, it is important to put it in perspective by comparing the year-over-year price changes with the (annualized) changes since February 2020, just before the outbreak of the COVID-19 pandemic in the United States. In this respect, we can see that motor fuels and motor vehicles – both new cars and trucks and used ones, with a special mention for the latter – have seen their prices rise at meteoric rates. The price increases of these “usual suspects” is largely related to a surging stimulus-boosted pent-up demand, amid supply constraints that have hampered cars productions in the first months of the recovery. Although it is difficult to get timely manufacturing data, there are anecdotical signs that show that the microchips shortage that has been to a large extent responsible of the impaired car production volumes, the lengthened car delivery delays and the subsequently higher price tags is starting to wane.
Another category is singled out in the latest CPI figures, namely the Household furnishings and operations, including furniture and bedding and appliances (e.g. Televisions). These goods and related services have also witnessed beyond 5 percent price increases on an annualized basis, from their pre-COVID levels. This is related for the strong demand for house related products and services boosted by pandemic related travel restrictions and stay-at-home orders. As these restrictions have been gradually lifted – albeit there are signs they could be temporarily reinstated in some places in relation with the spread of more contagious COVID-19 variants – the prices of these goods and services should settle down.
Overall, the figures confort the view that the post-COVID inflation surge is by all means temporary in nature and cost-push related. The most persistence source of core inflation over the long run – is related to the compensation of the labor force. In this regard, there is data showing a ramp up in compensation which is related to a tight job market, especially in some sectors. On the other hand, the labor slack induced by the COVID-19 disruption has not been completely resorbed. The combination of supply and demand dynamics that have led to higher costs and hence prices could reverse in the next 12 to 24 months. The question is how fast this can happen and if it is likely, in the meantime, to shift significantly upward inflation expectations. The real challenge for the FED is to continue convincing the markets that they should not look at the current inflation figures. If it fails to do so, it will have to change its monetary policy sooner than it expected.
Detailed table (CPI by item, MoM, YoY, %Feb. 2020 Annualized)
| item_name | MoM (%) | YoY (%) | % Feb. 2020 |
|---|---|---|---|
| All items | 0.9 | 5.3 | 3.5 |
| Food and beverages | 0.8 | 2.4 | 3.9 |
| Food | 0.8 | 2.4 | 4.0 |
| Food at home | 0.8 | 0.9 | 4.0 |
| Food away from home | 0.7 | 4.2 | 4.1 |
| Alcoholic beverages | 0.5 | 1.9 | 2.5 |
| Housing | 0.4 | 3.1 | 2.6 |
| Shelter | 0.5 | 2.6 | 2.2 |
| Rent of primary residence | 0.2 | 1.9 | 2.1 |
| Lodging away from home | 7.0 | 15.0 | 1.5 |
| Owners' equivalent rent of residences | 0.3 | 2.3 | 2.3 |
| Fuels and utilities | 0.3 | 6.5 | 4.5 |
| Household energy | 0.3 | 7.5 | 4.9 |
| Water and sewer and trash collection services | 0.4 | 3.6 | 3.3 |
| Household furnishings and operations | -0.1 | 4.1 | 3.9 |
| Window and floor coverings and other linens | 1.8 | -0.5 | -0.9 |
| Furniture and bedding | 0.7 | 8.6 | 5.4 |
| Appliances | 0.1 | 5.8 | 6.3 |
| Other household equipment and furnishings | -0.8 | 2.3 | 2.5 |
| Tools, hardware, outdoor equipment and supplies | 0.3 | 2.4 | 3.2 |
| Housekeeping supplies | -0.2 | 0.3 | 3.1 |
| Apparel | 0.7 | 4.9 | -1.3 |
| Men's and boys' apparel | 0.1 | 2.3 | -0.5 |
| Men's apparel | -0.9 | 1.5 | -2.9 |
| Boys' apparel | 1.1 | 5.5 | 3.3 |
| Women's and girls' apparel | 1.2 | 5.3 | -3.3 |
| Women's apparel | 1.6 | 5.2 | -4.4 |
| Girls' apparel | -0.6 | 5.6 | 1.6 |
| Footwear | 0.4 | 6.5 | 0.0 |
| Men's footwear | -0.5 | 6.5 | 1.6 |
| Boys' and girls' footwear | 0.1 | 5.7 | -0.9 |
| Women's footwear | 0.2 | 7.0 | -1.2 |
| Infants' and toddlers' apparel | 2.1 | -0.5 | -2.3 |
| Jewelry and watches | -0.3 | 11.2 | 6.5 |
| Watches | 1.7 | 7.8 | 6.3 |
| Jewelry | -1.4 | 12.3 | 7.0 |
| Transportation | 3.6 | 21.2 | 9.0 |
| Private transportation | 3.7 | 21.6 | 10.1 |
| New and used motor vehicles | 5.6 | 20.6 | 14.6 |
| Motor fuel | 2.5 | 44.8 | 8.2 |
| Motor vehicle parts and equipment | 0.7 | 3.5 | 2.2 |
| Motor vehicle maintenance and repair | 0.3 | 3.1 | 3.2 |
| Motor vehicle insurance | 1.2 | 11.3 | 3.7 |
| Public transportation | 2.4 | 17.3 | -3.7 |
| Airline fares | 2.7 | 24.6 | -7.3 |
| Other intercity transportation | 0.6 | 13.3 | 5.3 |
| Medical care | -0.1 | 0.4 | 1.5 |
| Medical care commodities | -0.4 | -2.2 | -1.8 |
| Medicinal drugs | -0.2 | -2.0 | -1.5 |
| Medical care services | 0.0 | 1.0 | 2.2 |
| Professional services | 0.0 | 2.6 | 2.9 |
| Hospital and related services | 0.2 | 2.7 | 3.0 |
| Recreation | 0.2 | 2.4 | 1.9 |
| Video and audio | 1.0 | 4.0 | 3.6 |
| Televisions | 1.3 | 7.5 | 3.2 |
| Cable and satellite television service | 1.2 | 5.1 | 4.8 |
| Other video equipment | -0.4 | 2.1 | 1.8 |
| Audio equipment | -0.9 | -4.4 | -3.9 |
| Pets, pet products and services | -0.1 | 2.9 | 1.4 |
| Pets and pet products | -0.3 | 1.1 | -1.3 |
| Pet services including veterinary | 0.1 | 4.9 | 4.6 |
| Sporting goods | 0.0 | 7.5 | 4.6 |
| Sports vehicles including bicycles | 0.4 | 8.1 | 5.6 |
| Sports equipment | -0.7 | 6.6 | 2.9 |
| Photography | 0.2 | 1.5 | 0.8 |
| Photographic equipment and supplies | 1.3 | 3.7 | 1.6 |
| Other recreational goods | -1.4 | 1.5 | -0.6 |
| Toys | -1.6 | 0.7 | -1.1 |
| Sewing machines, fabric and supplies | 0.5 | 13.3 | 0.8 |
| Music instruments and accessories | -1.0 | 1.7 | 1.5 |
| Other recreation services | 0.2 | -0.5 | 0.7 |
| Club membership for shopping clubs, fraternal, or other organizations, or participant sports fees | 0.0 | -0.4 | -0.3 |
| Admissions | -0.3 | -2.7 | 0.4 |
| Fees for lessons or instructions | 2.8 | 6.1 | 4.9 |
| Recreational reading materials | -1.4 | 0.7 | 1.8 |
| Education and communication | 0.1 | 2.1 | 1.7 |
| Education | 0.2 | 1.2 | 1.4 |
| Educational books and supplies | 0.1 | 2.5 | 2.4 |
| Tuition, other school fees, and childcare | 0.2 | 1.1 | 1.3 |
| Communication | 0.0 | 2.8 | 2.1 |
| Postage and delivery services | 0.4 | 3.2 | 3.2 |
| Information and information processing | 0.0 | 2.8 | 2.0 |
| Information technology, hardware and services | -0.4 | 0.1 | -0.2 |
| Other goods and services | 0.1 | 2.5 | 2.2 |
| Tobacco and smoking products | 0.6 | 7.0 | 6.4 |
| Cigarettes | 0.7 | 7.3 | 6.7 |
| Personal care | 0.0 | 1.5 | 1.2 |
| Miscellaneous personal services | 0.1 | 1.3 | 1.1 |
| Miscellaneous personal goods | -0.2 | -1.9 | -0.7 |
| All items less medical care | 1.0 | 5.8 | 3.7 |
| All items less energy | 0.9 | 4.1 | 3.3 |
| All items less food | 0.9 | 5.8 | 3.4 |
| All items less food and energy | 0.9 | 4.5 | 3.1 |
| All items less shelter | 1.1 | 6.7 | 4.1 |
| All items less food and shelter | 1.2 | 7.9 | 4.2 |
| All items less food, shelter, and energy | 1.2 | 5.8 | 3.8 |
| All items less food, shelter, energy, and used cars and trucks | 0.5 | 3.6 | 2.2 |
| Apparel less footwear | 0.8 | 4.3 | -1.6 |
| Commodities | 1.7 | 8.9 | 5.3 |
| Commodities less food | 2.2 | 12.9 | 6.0 |
| Commodities less food and beverages | 2.3 | 13.5 | 6.2 |
| Commodities less food and energy commodities | 2.2 | 8.6 | 5.6 |
| Commodities less food, energy, and used cars and trucks | 0.6 | 3.4 | 1.9 |
| Domestically produced farm food | 0.7 | 0.9 | 4.2 |
| Durables | 3.5 | 14.6 | 10.8 |
| Education and communication commodities | -0.2 | -1.1 | -0.9 |
| Education and communication services | 0.1 | 2.4 | 2.0 |
| Energy | 1.5 | 24.2 | 6.6 |
| Energy commodities | 2.6 | 44.2 | 8.3 |
| Household furnishings and supplies | 0.1 | 3.4 | 3.5 |
| Information technology commodities | -0.3 | -2.1 | -1.8 |
| Nondurables | 1.3 | 6.8 | 3.5 |
| Nondurables less food | 1.4 | 11.9 | 3.0 |
| Nondurables less food and apparel | 1.8 | 13.8 | 4.2 |
| Nondurables less food and beverages | 1.4 | 12.8 | 3.0 |
| Nondurables less food, beverages, and apparel | 1.9 | 15.3 | 4.4 |
| Other goods | 0.1 | 2.5 | 2.0 |
| Other services | 0.2 | 2.2 | 2.2 |
| Recreation commodities | -0.3 | 3.2 | 1.0 |
| Recreation services | 0.5 | 1.9 | 2.4 |
| Rent of shelter | 0.5 | 2.6 | 2.3 |
| Services | 0.4 | 3.2 | 2.4 |
| Services less energy services | 0.4 | 3.1 | 2.3 |
| Services less medical care services | 0.5 | 3.5 | 2.5 |
| Services less rent of shelter | 0.3 | 3.9 | 2.7 |
| Transportation commodities less motor fuel | 5.6 | 20.2 | 14.4 |
| Transportation services | 1.5 | 10.3 | 2.4 |
| Utilities and public transportation | 0.4 | 6.7 | 2.9 |
| Video and audio products | 0.4 | 2.2 | 0.6 |
| Video and audio services | 1.1 | 4.4 | 4.2 |