The Week in Review: July 19, 2021
Hotter Inflation
The Consumer Price Index (CPI), which was released last week, rose a sharp 0.9% in June, according to the U.S. Bureau of Labor Statistics. The core CPI, which excludes food and energy, was also up 0.9%.
Categories that have led the index in recent months continue to rise at a fast pace. The price of used cars soared 10.5%. Used cars are up a record 45% over the last 12 months. New cars jumped 2.0% and are up 5.7% over the last year, the fastest pace since 1987.
The problem with autos has been well documented. Chip shortages are restricting the production of new vehicles, while stimulus money has helped lift auto sales by over 25% since January 2020, according to the latest retail sales report from the U.S. Census. It’s the classic case of too much demand and not enough supply.
During testimony before two congressional committees last week, Federal Reserve Chief Jerome Powell pushed back on repeated questions about inflation.
While he acknowledged the Fed “is not comfortable” with the current pace of inflation, he also believes it will subside as temporary factors tied to the pandemic recede.
Why are his views important? Because the Fed could react more aggressively to rising prices by hiking interest rates to cool off strong economic growth. For now, the Fed takes the position that today’s burst in inflation is temporary and that rate hikes aren’t needed.
Notably, the big inflation numbers are coming mostly from a few categories, such as autos. The Fed also looks at a little-known inflation measure called the trimmed mean. Basically, the trimmed mean removes the outliers, or a few items at the high and low end.
According to the Dallas Federal Reserve’s gauge, inflation remains well under control. But that’s of little comfort if you are in the market for a new car or another item that has jumped in price.
Finally, here’s a longer-term look at the CPI, breaking out prices for services versus goods excluding food and energy. Over the last 30 years, price hikes for services have easily outpaced consumer goods. What’s unclear is whether the long-term factors that have held back consumer goods might be abating.
If you have any questions or concerns, please don’t hesitate to contact me.
Two for the Road
1. More than 400 ships traveling between Asia and the West Coast were late by more than two weeks during the first five months of this year. Compare that to 388 vessels in total that were late between 2012 and 2020. —Yahoo!News, July 7, 2021
2. U.S. households added $13.5 trillion in wealth last year, the biggest increase on record going back three decades. —The Wall Street Journal, June 27, 2021
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