June 10, 2021

The CPI rose 0.6% in May after having jumped 0.8% in April and 0.6% in March.  It rose1.3% in 2020, and the year-over-year increase currently is 4.9%.

Food prices climbed 0.4% in both April and May.     In the past year food prices have risen 2.1%.

Energy prices were unchanged in May after having declined 0.1% in April, but having jumped 5.0% in March, 3.9% in February, 3.5% in January.   The recent run-up in energy prices appears to be a reflection of the global economy gathering momentum.  The IMF anticipates 6.0% global GDP growth in 2021. In the past year energy prices have risen 27.8% as crude oil prices have now climbed to $70 per barrel.

The CPI excluding the volatile food and energy prices rose 0.7% in May after having surged by 0.9% in April.   In 2020 the so-called core CPI rose 1.6%.  The increase the 12-month period ending in April is now 3.8%.

Part of the outsized increase in the core CPI for May was used car prices which rose 7.3% after having skyrocketed upwards by 9.5% in April.  In the past year used car prices have risen 29.7%.  Presumably the chips shortage and the associated shortage of available new cars is at the root of the April run-up in used car prices.

In May airfares climbed by 7.0% after having jumped 10.2% in April as the economy continues to re-open and consumers start to travel once again.  In the past year airfares have risen 24.1%.

The same thing is true for  hotel room rates.  They  rose 0.4% in April after having surged 8.8% in April and 4.4% in March.  Room rates have risen 10.0% in the past year.

There is no doubt in our mind that the inflation rate is on the rise primarily because of 18% growth in the money supply in the past year.  Typically, M-2 rises at about a 6.0% pace.  But when the Fed purchased $3.0 trillion of government securities back in the spring of last year money growth soared.  An 18% increase in a year  is unprecedented growth and is going to cause the inflation rate to continue to climb in the months ahead.

In addition to used cars, airfares, and hotels, we are  seeing signs of inflation beginning to climb elsewhere.  Home prices have jumped 13.2% in the past year.

Commodity prices are at their highest level in the past ten years which is also lifting goods prices.

The dollar has been declining which means that the prices of imported goods will continue to climb.

The CPI rose just 1.3% in 2020 while the core rate rose1.6% .  We expect the CPI excluding food and energy is projected to increase 4.4% this year and then increase 3.3% in 2022.

Stephen Slifer

NumberNomics

Charleston, SC