The CPI report sharply beat estimates, with June gains of 0.9% for both the headline and the core, leaving the fourth month of outsized increases. The June headline rise was the largest since the 1.0% jump in June of 2008. The core rate ties April of both 2021 and 1982 as the biggest gain since September of 1981.
The June gains rounded from respective increases of 0.905% and 0.878%.
The y/y headline metric rose to 5.4% from 5.0% in May and 4.2% in April, leaving the three largest gains since 2008. The y/y core measure rose to 4.5% from 3.8%, leaving the two largest gains since 1992.
The last three monthly CPI gains were lifted by increases for used car prices of 10.5% in June, 7.3% in May, and 10.0% in April, and for airfares of 2.7% in June, 7.0% in May, and 10.2% in April. Used car prices previously rose just 0.5% in March, but fell -0.9% in each of the prior three months. Airfares rose 0.4% in March, but declined by -5.1% for February, -3.2% in January and -2.5% in December.
We saw outsized prices gains for new vehicles of 2.0% in June, 1.6% in May, and 0.5% in April, but two prior flat readings.
The CPI also again received a big lift from apparel prices, which rose 0.7% in June, 1.2% in May, and 0.3% in April, following drops of -0.3% in March and -0.7% in February. We previously saw huge winter gains of 2.2% in January and 0.9% in December.
CPI was lifted in June by energy prices, after restraint in April and May. Headline energy prices rose 1.5% in June after a flat May figure, and a -0.1% April drop that broke a prior 10-month string of gains. Gasoline prices rose 2.5%, after falling -0.7% in May and -1.4% in April.
Food prices rose 0.8%, after gains of 0.4% in both April and May.
Tobacco prices rose 0.6%, after gains of 0.1% in May, 0.2% in April, 0.6% in March and February, and 1.8% in January.
Owners’ equivalent rent rose by 0.3%, after gains of 0.3% in May, 0.2% in both March and April, 0.3% in February and 0.1% in January.
For at least some price restraint, medical care service prices were flat, after a -0.1% May drop, a flat April figure, and a lean 0.1% March rise.
The y/y CPI headline gain rose to a 13-year high of 5.4% from a prior 13-year high of 5.0% in May, 4.2% in April, 2.6% in March, 1.7% in February, 1.4% in January and December, and 1.2% in both October and November.
The core y/y gain rose to a 29-year high of 4.5% in June from a prior 29-year high of 3.8% in May, 3.0% in April, 1.6% in March, 1.3% in February, 1.4% in January, and 1.6% over the three months through December.
On a moving average basis, CPI headline gains are trending higher after the sharp pull-back in Q2 of 2020. We have 6-month average price gains of 0.592% for the headline and 0.501% for the core, versus respective 12-month average gains of 0.434% and 0.364%.
Consumer prices face a massive lift from huge PPI and trade price gains in 2021 that are working their way through the system to the consumer level, alongside widespread capacity constraints and bottlenecks, alongside “base effects” that lifted the y/y measures in Q2.
Bottom Line
Monthly gains in the inflation metrics have accelerated dramatically in 2021, beyond the boost in the y/y measures due to “base effects” that will be diminishing now from Q2 peaks. We now assume y/y CPI gains in excess of 4% for both the headline and core by December.
We have yet to see if this pull-back will prove fast enough to prevent any lift in inflation expectations in 2022 and beyond, which will determine if the 2021 rise in the inflation metrics is “transitory.”
