Washington (AP) — US consumer prices surged the most in June in 13 years. This shows a rapid recovery in spending in response to the widespread supply shortage that has increased the cost of many goods and services.
A Tuesday report from the Ministry of Labor showed that consumer prices in June rose 0.9% from May and 5.4% over the past year. This is the 12-month sharp rise in inflation since August 2008. Excluding volatile oil and gas prices, so-called core inflation rose 4.5. % In the last year, the largest increase since November 1991.
Inflation recovery, consistent with the rapid recovery of the economy from the pandemic recession, has intensified debate in the Federal Reserve and between the Biden administration and Congressional Republicans about how sustainable the accelerating price increase will be. Will let you.
The Federal Reserve Board of Governors and the White House have revealed their belief that current inflation will be temporary. They suggest that as supply chain bottlenecks disappear and the economy returns to normal, soaring prices for used cars, hotel rooms, clothing, etc. will diminish. Some economists have indicated they agree with Wall Street investors.
Gus Faucher, economist at PNC Financial Services, said: “The recovery from the pandemic has seen significant price increases in several categories, including used cars, airfares, car rentals and hotels.”
Still, continued high inflation is expected to determine that the Fed may decide to act faster than expected to withdraw its ultra-low interest rate policy aimed at supporting more borrowing and spending. To increase. If so, it risks weakening the economy and potentially upsetting recovery.
So far, price increases have been ahead of this year’s wage increases, which means that the financial burden on millions of households is becoming more difficult. Average hourly wages in June increased 3.6% year-on-year, usually a solid rise, but well below current inflation.
Low-income workers are also most affected by rising food prices, which rose 0.8% in June, and gas costs, which rose 2.5% last month and 45% from a year ago.
One of the reasons for the very high year-on-year inflation is that the latest prices have been measured in response to the sharp price decline following the pandemic eruption in March last year. That statistical distortion began to fade in June and will no longer be a factor when the year-on-year inflation rate in July is announced next month.
Looking past these distortions, prices are rising faster than they were before the pandemic, but not as much as recent monthly figures suggest. Greg McBride, chief financial analyst at Bankrate, said inflation has risen at a pace of about 3% annually over the past two years compared to June 2019. This is up from the annual inflation rate of 2.6% from May 2019 to May 2021.
In addition, ongoing price spikes can quickly disappear. Hotel room rates have skyrocketed by 7% in June alone and 15.1% over the past year, the highest ever in the 1950s. However, the surge may not last as it only brought hotel prices back to pre-pandemic levels.
Airfares, which surged 2.7% last month, surged nearly 25% compared to a year ago. Still, ticket prices are still below pre-COVID levels.
Used car prices far exceeded pre-pandemic prices, jumping 10.5% last month alone. This is the biggest rise of the month like this. The surge accounted for about one-third of the monthly rise in consumer prices for the third straight month.
Used cars are very expensive, mainly due to a lack of semiconductors, which reduces new car production, which leads to more buyers lots of used cars. And many car rental companies sold part of their fleet to raise cash during the pandemic, and now desperately buy used cars to replenish their supply.
Car rental prices have risen by a staggering 90% over the past year due to a shortage of car rentals and rising demand.
Soaring used car prices, however, are unlikely to continue. Prices are starting to fall at wholesale auctions where dealers buy vehicles, which may slow demand for used cars.
David Keleher, who runs a Stellantis (formerly Fiat Chrysler) dealership in Glen Mills, Pennsylvania, near Philadelphia, noticed that few customers were looking for a used car.
“I think I was told that it was hard to buy a used car,” Kelleher said.
Kelleher, who cut the price of about 150 used cars currently in stock, said other dealers reported the same situation and hoped that customers would return once the price cut was fully implemented. Told. Still, the supply of new cars is still tight and the prices are high, which could sustain customer demand for used cars.
In a broader sense, other trends keep consumer prices high. Restaurant prices rose 0.7% last month and 4.2% over the past year. This shows that many companies are raising prices to offset rising labor costs.
Household furniture costs increased 0.7% from May to June, an increase of 8.6% compared to a year ago. This is because more Americans upgraded their homes after spending more time during the pandemic. Mohawk Industries, a manufacturer of carpets and tiles, has announced a 6% to 10% price increase this year, the third increase this year to cover rising raw material, labor and transportation costs.
Spice maker McCormick said he plans to raise prices to offset rising raw material costs. Similarly, Konagra said inflationary pressure reduced its profits. The company, which manufactures everything from Duncan Hines to Pam Cooking Spray, said it would raise prices to offset some of these costs. PepsiCo also said it is likely to raise prices for drinks and Frito-Lay snacks after Labor Day.
So far, investors have largely accepted the Fed’s belief that higher inflation is short-lived, with bond yields indicating that Wall Street’s inflation concerns are diminishing. Fixed income investors now expect inflation to average 2.4% over the next five years, from 2.7% in mid-May.
Note: This story will be updated in the video.