US consumer prices surge in June by the most since 2008


Associated Press 13 July, 2021 - 07:48am 15 views

WASHINGTON (AP) — Prices for U.S. consumers jumped in June by the most in 13 years, evidence that a swift rebound in spending has run up against widespread supply shortages that have escalated the costs of many goods and services.

“The headline inflation numbers have been eye-popping in recent months, but underlying inflation remains under control,” said Gus Faucher, an economist at PNC Financial Services. “Once again a few categories — used vehicles, airfares, rental cars, hotels — are experiencing huge price gains because of the recovery from the pandemic.”

For now, price increases are running ahead of the wage gains that have kicked in this year, which means the financial burdens on millions of households have grown more difficult. Average hourly earnings increased 3.6% in June compared with a year earlier, normally a solid gain, but far less than current inflation.

Lower-income workers are also hardest hit 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 reason why year-over-year inflation readings are now so high is that the most recent prices are being measured against the sharp price declines that followed the eruption of the pandemic in March of last year. That statistical distortion began to fade in June and will no longer be a factor when July’s year-over-year inflation figures are released next month.

Looking past those distortions, prices are rising faster than they did before the pandemic but not as much as the recent monthly numbers suggest. Greg McBride, chief financial analyst at Bankrate, noted that compared with June 2019, inflation has risen at about a 3% annual pace over the past two years. That is up from a 2.6% annual inflation pace from May 2019 to May 2021.

In addition, some ongoing price spikes could fade soon. Hotel room prices surged 7% in June alone and 15.1% in the past year, the most on records dating to the 1950s. But that surge has merely returned hotel prices to pre-pandemic levels and so may not persist.

Airline fares, which jumped 2.7% last month, have skyrocketed nearly 25% compared with a year ago. Yet airline ticket prices are still below pre-COVID levels.

Prices for used cars are far above where they were before the pandemic and soared 10.5% last month alone — the largest such monthly increase on record. That spike accounted for about one-third of the monthly increase in consumer prices for a third straight month.

Used cars have become vastly more expensive largely because semiconductor shortages have cut production of new cars, thereby leading more buyers to the used car lots. And many rental car companies sold portions of their fleets during the pandemic to raise cash and are now desperately buying up used cars to replenish their supply.

The shortage of rental cars combined with greater demand has elevated vehicle rental prices by an astounding 90% in the past year.

The surge in used car prices, though, isn’t likely to last. Prices are starting to drop at wholesale auctions where dealers buy vehicles, and used vehicle demand may be slowing.

David Kelleher, who runs a Stellantis (formerly Fiat Chrysler) dealership in Glen Mills, Pennsylvania near Philadelphia, has observed that fewer of his customers are seeking used vehicles.

“I think the word got out that it was a tough time to buy a used car,” Kelleher said.

Kelleher, who has now cut prices on the roughly 150 used vehicles he has in stock, says other dealers are reporting the same conditions, and he expects customers to return once the price declines take full effect. Still, supplies of new vehicles remain tight and prices high, a trend that could sustain customer demand for used vehicles.

More broadly, other trends are keeping consumer prices high: Restaurant prices rose 0.7% last month and 4.2% over the past year, a sign that many companies are raising prices to offset higher labor costs.

The spice maker McCormick & Co. said it plans to raise prices to offset higher raw materials costs. Likewise, Conagra has said inflationary pressures have reduced its profits. The company, which makes everything from Duncan Hines to Pam cooking spray, has said it will raise prices to offset some of those costs. PepsiCo, too, said it will likely raise prices for its drinks and Frito-Lay snacks after Labor Day.

So far, investors have largely accepted the Fed’s belief that higher inflation will be short-lived, with bond yields signaling that inflation concerns on Wall Street are fading. Bond investors now expect inflation to average 2.4% over the next five years, down from 2.7% in mid-May.

Read full article at Associated Press

US Consumer Prices Increased in June by More Than Forecast By Bloomberg 13 July, 2021 - 05:32pm

(Bloomberg) -- Prices paid by U.S. consumers increased in June by more than expected as higher commodity and labor costs associated with the economy’s reopening continued to fuel inflationary pressures.

The consumer price index jumped 0.9% in June and 5.4% from the same month last year, according to Labor Department data released Tuesday. Excluding the volatile food and energy components, the so-called core CPI also rose 0.9%, and increased 4.5% from June 2020.

Used vehicles accounted for one third of the gain in the CPI last month, the agency said.

The median forecasts in a Bloomberg survey of economists called for a 0.5% gain in the overall CPI from the prior month and a 4.9% year-over-year increase.

By David Randall NEW YORK (Reuters) - Deflation will likely become a larger force in financial markets in the year ahead despite the recent spike in consumer prices to 13-year...

By Andrea Shalal WASHINGTON (Reuters) -The White House expects supply chain pressures that are fueling higher inflation to abate in the "not-too-distant future," but cannot say...

WASHINGTON (Reuters) - The U.S. government posted a June deficit of $174 billion, about a fifth of the June 2020 deficit of $864 billion, as a rebound in the labor market and an...

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U.S. Consumer Prices Jump Most Since 2008, Topping All Estimates

Bloomberg Quicktake: Now 13 July, 2021 - 05:30pm

Opinion | Only the Rich Could Love This Economic Recovery

The New York Times 13 July, 2021 - 02:26pm

There are signs of worsening inequality across the U.S. economy. But recent surges trace back to a major change after 2008, which transformed how America fights economic recessions.

By the start of 2021, the richest 1% of Americans held 32% of the nation’s wealth, its highest level since these records began in 1989.

The bottom 50%, meanwhile, held just 2% of the nation’s wealth.

This new record comes on the heels of a year’s worth of huge economic stimulus and more than a decade of rock-bottom interest rates.

Who was helped by this policy? Since the start of 2020, the bottom 50% gained $700 billion in wealth.

But this is a pittance compared with the mammoth gains for the ever fewer who are ever richer: In the same period, the richest 1% gained $10 trillion.

The Fed, which controls America’s monetary policy, is mired in conventional thinking, even though its policy since 2008 has been unconventional in scale, scope and omnipotence. Adhering to its “lower rates are better” axiom, the Fed has kept “real” U.S. short-term interest rates at — or even below — zero, after taking inflation into account. The Fed now plans to keep rates ultra, ultra low until about 2023, even if inflation ticks up.

This results in even wider wealth inequalities as the gap between the rich and everyone else grows.

Is the stunning growth in U.S. inequality all the Fed’s fault? Of course not. Tax policy has favored the wealthy and corporations for decades, to name one other cause. But income and wealth inequality result from who gets the money. And the Fed has unrivaled power over who gets the money across markets, communities and even families.

The Fed’s main tools for fighting recessions are twofold: those ultra-low interest rates and a policy known as quantitative easing, or Q.E. Q.E is what happens when the Fed buys up assets, like bonds, which keeps money flowing and gives banks lots of liquidity that is supposed to make lending easier.

To get an idea of the magnitude of the Fed’s role, take a look at its portfolio. Assets the Fed has taken out of the economy as part of Q.E. now stand at $8.1 trillion, or about one-third of gross domestic product.

sheet as a share of GDP

sheet as a share of GDP

No one else could own that much, meaning no one but the Fed has so much power over the economy’s winners and losers.

The Fed’s approach is premised on trickle-down expectations, adopted in the early 2000s. U.S. central bankers believe the higher that markets fly and the more that the wealthy spend, the better that everyone else will be.

In truth, this policy works only for the wealthy.

Although the Fed’s huge Q.E.-based portfolio initially prevented still worse economic mayhem when the 2008 and 2020 financial crises struck, its benefits over time were 10 times greater for stock-market prices than for overall economic prosperity.

Months since increase in quantitative easing

Months since increase in quantitative easing

Ultra-low interest rates are meant to spur growth. But they stop having a beneficial effect when they dip so low that they distort savings incentives and instead drive speculative investing, like in Bitcoin or GameStop, to cite two current examples.

Many Americans own stock, but most stocks – 54 percent – are owned by the 1 percent and much of the rest by the next 9 percent.

The same can be said of real estate. Low interest rates set by the Fed spur lending, creating more demand to purchase homes and forcing prices higher. Rising equity is great for existing homeowners, but richer Americans who own property are the ones who benefit most.

Change in corporate equities and mutual fund assets

Stocks have soared to staggering heights ...

... benefiting the rich more than others.

Change in corporate equities and mutual fund assets

Change in U.S. median home prices

... benefiting the rich more than others.

Change in dollar value of real estate

... benefiting the rich more than others.

Change in U.S. median home prices

Change in dollar value of real estate

... benefiting the rich more than others.

Change in U.S. median home prices

Change in dollar value of real estate by wealth group

What about Americans who are trying to get ahead not through assets, but through saving? Even low-income households are doing their best to save a surprising amount of money. But the Fed’s interest-rate policy robs savers of any interest they might see.

The inequality impact of the invest-you-gain, save-you-lose conundrum is clear. To understand why, imagine two people trying to grow $10,000 through investing or saving.

By June 2021, is worth ...

$10,000 put in a savings account in 2007

By June 2021, is worth ...

By June 2021, is worth ...

$10k in savings account in 2007

By June 2021, is worth ...

The calculations above show that even if average Americans could save $10,000, they would be falling far behind investors. After inflation, their thrift would net only $9,529 – a flat-out loss.

The Fed’s role is spelled out under its statutory charter, which establishes the road map for unraveling the inequality it helped create.

The charter’s first goal is “full employment,” meaning pretty much everyone who wants a job has one. This would get a meaningful, immediate boost if the Fed reversed its cheap-debt policies that lead companies to take out debt to fund investor profits, instead of funding new plants or products.

Another goal is “price stability,” best measured by what it costs for a middle-class household to make ends meet. The measure the Fed uses misses the cost increases obscuring a household-to-debt build-up for all but the wealthiest. The Fed thus misses the long-term risks this debt poses to financial security, home ownership, and a secure retirement.

The law has a third Fed goal: “moderate” interest rates. Rates below zero after taking inflation into account are anything but moderate, so they must be gradually raised, starting now.

The current recovery is being driven not by the Fed but by the stimulus bills passed by Congress. After that spending fades, we will be a nation in which at least a quarter of middle-class households still can’t even afford the medical treatment they require, lower-income millennials have student debt equal to at least 372 percent of income, and still more won’t be able to handle even a $400 unexpected expense.

This is wealth without prosperity, a violation of every tenet in the Fed’s statutory mandate. Instead of regretting inequality even as it makes inequality worse, the Fed can and must quickly rewrite policy with a new goal in mind: shared prosperity, measured by how most of us do, not by how high the market flies.

Ms. Petrou is the managing partner of Federal Financial Analytics and the author of “Engine of Inequality: The Fed and the Future of Wealth in America.”

Analysis: Investors pivot to Powell after more hot U.S. inflation data

Reuters 13 July, 2021 - 01:10pm

Stocks appeared to be taking June’s sharp consumer price jump largely in stride, with major indexes edging lower after data showed inflation barreling higher amid supply constraints and a rebound in costs of travel-related services. read more

Benchmark U.S. Treasuries sold off, with yields rising, after a weak auction for the 30-year note.

With Fed Chair Jerome Powell due to testify before Congress on Wednesday, however, many will be watching for signs that the third straight month of hot inflation is pushing the central bank to alter its stance on rising consumer prices, which it has said are transitory, and may begin unwinding its easy-money policies sooner than expected.

The data were "clearly an upside surprise," said Michael Brown, senior analyst at Caxton in London. "It will make Powell's testimony on Capitol Hill tomorrow a much trickier exercise than it would've otherwise been given that it will put some additional pressure on the 'transitory' narrative."

Fed monetary support has been a critical for markets as the benchmark S&P 500 (.SPX) index has soared over 95% since March 2020. Any signs of a faster-than-expected unwind of the Fed's policies in order to curtail inflation, such as a tapering of its bond-buying program, stand to rattle asset prices.

A perceived hawkish shift from the central bank last month led stocks to wobble before indexes pushed to new highs, while the benchmark 10-year Treasury yield has moved lower.

Tuesday’s report, which showed June's consumer price index rose 0.9% after advancing 0.6% in May, potentially complicates views that the economy is cooling off enough to forestall a faster unwind by the Fed.

Expectations of a slowing rebound have in recent weeks weighed on Treasury yields. They have also accelerated a rotation from shares of economically sensitive companies such as banks and energy firms back into the high growth technology-focused stocks that have led markets higher for most of the last decade. read more

A BofA Global Research survey of fund managers taken earlier this month found that 70% believed the spike in inflation was transitory, with 26% saying it would be longer lasting.

Indeed, some analysts on Tuesday pointed to details of the CPI rise, including a big boost from used car prices, as supporting the idea that inflation may be transitory.

"The report was a little jarring, but nothing in the report was shocking enough to change the narrative," said Brian Jacobsen, senior investment strategist at Wells Fargo Asset Management. "It still looks like the inflation pressure is highly concentrated in certain areas tied to the re-opening, like used cars, energy, and hotel prices."

Powell's appearances before a House of Representatives committee on Wednesday and Senate panel on Thursday come ahead of the Fed's next policy meeting on July 27-28. Investors are also focused on the Fed's economic policy symposium in Jackson Hole, Wyoming in late August for when the central bank could signal a shift.

"The market came around to the idea that the Fed wouldn’t allow inflation to get carried away" after the release of the FOMC policy statement in June, said Jack Janasiewicz, a strategist at Natixis Advisors. "The 'don’t fight the Fed backdrop' will be very important here. As long as it continues to provide liquidity it's tough to get bearish on assets."

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