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US CPI Has Hit a New High in the Past Three Decades. Is Inflationary Pressure Only Temporary?

Summary

Data released by the US Department of Labor on Tuesday (July 13) showed that the US consumer price index rose 0.9% month-on-month and 5.4% year-on-year in June. The core CPI, which excludes food and energy, rose 4.5% year-on-year, the largest increase since November 1991. Investors are highly vigilant about whether continued higher-than-expected price increases will cause the Fed to reduce its monthly asset purchases of US$120 billion.

According to data released by the US Department of Labor on Tuesday, the consumer price index jumped 0.9% month-on-month in June and 5.4% year-on-year. Excluding the volatile food and energy components, the so-called core CPI rose 0.9% month-on-month, and the year-on-year increase reached 4.5%, the largest increase since November 1991. The median forecast from a survey of economists is that the CPI in June increased by 0.5% month-on-month and 4.9% year-on-year.


According to the Labor Department, used cars accounted for one-third of the CPI increase in June. The sharp increase in the CPI was also largely due to the rebound in prices in categories related to the wider reopening of the economy, including hotel accommodation, car rental, clothing and air tickets.


Economists have been observing whether price pressure will extend beyond the category that just rebounded after the anti-epidemic blockade was lifted. The cost of living, which accounts for one-third of the CPI’s weight, rose 0.5% in June, the largest increase since October 2005. A 7.9% increase in hotel accommodation prices contributed to this increase.


Wages rose steadily in the second quarter, but rising consumer prices dwarfed them. Another data on Tuesday showed that inflation-adjusted average hourly wages fell by 1.7% in June, after falling by 2.9% in the previous month. Consumers expect prices to continue to rise in the near future. According to the New York Fed’s consumer expectations survey, the median inflation expectations for the next year rose to a new high of 4.8% in June.


Driven by government stimulus measures, residents’ demand for goods is strong, forcing companies to struggle with the increase in orders in the face of shortages of raw materials and labor. This situation has brought rising costs, which are usually passed on to consumers. At the same time, the cancellation of anti-epidemic control measures is also driving the demand for services such as travel and transportation, and has also become another factor that fuels inflationary pressures.


The year-on-year CPI data has risen sharply in recent months, partly due to the so-called base effect, because last year, during the epidemic lockdown, the CPI fell from March to May. Although the annual increase in CPI is expected to peak, it is not clear to what extent the slowdown will occur in the coming months.


John Ryding, chief economist at Brean Capital, said: “As for inflation, the Fed tells us that it is only temporary. However, price increases are getting faster and faster, and the duration is getting longer. The monthly increase we just got is about Twice as expected."


Risk Warning: The above content is for reference only, and does not represent JRFX’s position. JRFX does not assume any form of loss caused by any trading carried out in accordance with this article. Please consult your financial planner for your investment portfolios and manage your own risk.


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