September 14, 2021

The CPI rose 0.3% in August after climbing 0.5% in July and 0.9% in June.  It rose 1.3% in 2020, and the year-over-year increase currently is 5.2%.

Food prices rose 0.4% in August after rising 0.7% in July and 0.8% in June.     In the past year food prices have risen 3.7%.

Energy prices increased 2.0% in August after rising 1.6% in July and 1.5% in June.   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 24,9% as crude oil prices have now climbed to $70 per barrel.

The CPI excluding the volatile food and energy prices rose 0.1% in August after increasing 0.3% in July and 0.9% in June.   In 2020 the so-called core CPI rose 1.6%.  The increase the 12-month period ending in April is now 4.0%.

Part of the smaller-than-expected increase in the core CPI for August was used car and truck prices which fell 1.5% after rising 0.2% in July and 10.5% in June  In the past year used car prices have risen 31.9%.  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)

New car prices have rose 1.2% in August after having climbed 1.7% in July and 2.0% in June.  For the year as a whole new car and truck prices have risen 7.7%,

In August airfares fell 9.1% after declining 0.1% in July and rising 2.7% in June..  In the past year airfares have risen 6.7%..  However, air traffic is still 20% below where it was in 2019 — prior to the recession.  As business travel gradually returns that may leave room for further increases in the months ahead.

Hotel room rates fell 3.3% in August after rising 6.8% in July and 7.9% in June.  Room rates have risen 19.6% in the past year.  Like airfares hotel room rates should also slow as the year progresses and that process appears to have begun.

In addition to used cars, airfares, and hotels, we are  seeing signs of inflation beginning to climb elsewhere.  Home prices have jumped 18.6% in the past year.

As home prices rise, rents are also beginning to climb as some frustrated potential buyers are forced to rent.  In addition, rental vacancy rates are the highest they have been since the mid 1980’s.  The shelter component of the CPI rose 0.2% in August after climbing 0.4% in July and 0.5% in June.  This means the year-over-year increase now stands at 2.8%, but the pace is accelerating.  In the past three months rents have been rising at a 4.3% 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 12.1% 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 4.8% this year and then increase 3.7% in 2022.

Stephen Slifer

NumberNomics

Charleston, SC