July 13, 2021

The CPI jumped 0.9% in June after climbing 0.6% in May, 0.8% in April, and 0.6% in March.  It rose 1.3% in 2020, and the year-over-year increase currently is 5.3%.

Food prices rose 0.8% in June after climbing 0.4% in both April and May.     In the past year food prices have risen 2.4%.

Energy prices rose 1.5% in after having having been unchanged in May after rising much more quickly earlier in the year.   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 24.2% as crude oil prices have now climbed to $73 per barrel.

The CPI excluding the volatile food and energy prices  jumped 0.9% in June, after having risen 0.7% in May, and 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 4.5%.

Part of the outsized increase in the core CPI for May was used car prices which jumped 10.5% in June after having risen 7.3% and 9.5% in April.  In the past year used car prices have risen 45.2%.  Presumably the chips shortage and the associated shortage of available new cars is at the root of the recent run-up in used car prices.  As the chips shortage abates later this year used car and truck prices should decline, but that should be replaced by more rapid increases in new car and truck prices (which is a much larger category)

In June airfares rose 2.7% after having risen 7.0% in May and 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 24.6%.  They should slow as the year progresses, but it does not look like they are poised to do so quite yet.

The same thing is true for  hotel room rates.  They  rose 7.9% in June after climbing 0.4% in May, 8.8% in April, and 4.4% in March.  Room rates have risen 16.9% in the past year.  Like airfares hotel room rates should also slow as the year progresses, but they are not quite ready to start that process.

In addition to used cars, airfares, and hotels, we are  seeing signs of inflation beginning to climb elsewhere.  Home prices have jumped 14.6% in the past year.

As home prices rise, rents are also beginning to climb as some frustrated potential buyers are forced to rent.  The shelter component of the CPI rose  0.5% in June after rising 0.3% in May and 0.4% in April.  This means the year-over-year increase now stands at 2.6%, but the pace is accelerating.  In the past three months rents have been rising at a 4.8% pace.  This is a big deal because rents represent one-third of the entire CPI index.

There is no doubt in our mind that the inflation rate is on the rise primarily because of 13.8% 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.  A 13.8% increase in a year  is unprecedented growth and is going to cause the inflation rate to continue to climb in the months ahead.

The core CPI rose 1.6% in 2020.  We expect the CPI excluding food and energy to increase 5.3% this year and then increase 3.7% in 2022.

Stephen Slifer

NumberNomics

Charleston, SC