- Headline and Core CPI both come in hotter than expected…
- Fed officials peddle “transitory” message…
- Central Bank could begin tapering soon…
Cue the “transitory” soundbites as inflation continues to run extra hot.
The Bureau of Labor Statistics Consumer Price Index for June came in higher than economists’ expectations for both headline and core inflation on both a monthly and annual basis.
The report shows headline inflation rose 0.9% last month vs 0.5% expected while the index jumped 5.4% year-over-year vs 5% expected.
That was the hottest headline reading since August 2008.
The Core CPI — which excludes food and energy prices — also rose 0.9% monthly vs 0.5% expected while core prices jumped 4.5% annually vs 3.8% expected.
The core change was the strongest annual reading since September 1991.
But Fed officials are already making the rounds to push their “temporary” narrative.
Fed Says Hot CPI Was Expected
San Francisco Fed President Mary Daly appeared for an interview on CNBC shortly after the release of the latest inflation data this morning.
Daly told CNBC that the hot June numbers “really had been expected”.
“Right now, it really remains steady in the boat, don’t read too much signal out of any month of data, and let’s get through this volatile period so we can really see where the economy is,” said Daly.
She also predicted prices won’t continue to rise in the sectors that have seen a recent surge.
“And I just don’t see that happening in the used-car market, or the airline prices or tourism more generally. All of which are really driving up the inflation numbers.”
But Daly did signal the Fed may be ready to move forward with some policy changes soon.
She told CNBC she expects the bank to begin tapering its asset purchases by the end of this year or early 2022.
“It is appropriate to start talking about tapering asset purchases, taking some of the accommodation that we have been providing to the economy down,” said Daly. “We’ll still be in a very accommodative position with a low funds rate, but we don’t need all the tools we see the economy get its own footing.”
She said the strength of the economy as more businesses reopen will allow the bank to slow down its money-pumping operation.
According to Daly, this is “absolutely the time to start doing that, having those conversations. My own view is we’ll probably be in a good position to taper at the end of this year or early next.”
In their last meeting, the Central Bank refused to provide a timeline on asset purchases but penciled in their first rate hike for 2023.
Daly also raised concerns about the Delta variant of COVID, saying the mutation that is now spreading across the U.S. does pose a risk to their outlook for economic recovery.
As government officials insist this hot inflation is temporary, let’s take a look at what’s pushing the prices higher.
Sifting Through the Data
- Food prices rise 2.4% annually
Americans are continuing to see higher prices at both the grocery store and in restaurants. In June, the largest gain was seen at restaurants as prices for “food away from home” jumped 4.2% year-over-year. Grocery prices were up 0.9% annually.
- Energy prices surge 24.5% year-over-year
U.S. consumers are feeling the pain at the pump as gas prices surge to the highest in more than a decade. And that was the biggest driver in June’s energy price gain as gasoline prices rose 45.1% annually. Prices for energy in the home also rose sharply with electricity up 3.8% annually while gas prices (the kind you use inside the home, not your car) rose 15.6%.
- Car prices continue to balloon
As carmakers struggle with a global chip shortage, Americans are paying more for both new vehicles and used vehicles. New car prices rose 5.3% but prices for used cars and trucks were up a much sharper 45.2%.
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