Inflation Posts Highest One-Month Gain Since Great Recession

MANHATTAN (CN) — Inflation jumped nearly 1% again last month, with the hot economy seeing the largest one-month increase since the early days of the Great Recession.

Core inflation — a measure of prices, sans food and energy — and headline inflation — which measures all goods — both increased by 0.9%, about double what many analysts had expected and the greatest monthly jump in inflation since August 2008, according to the Bureau of Labor Statistics on Tuesday.

Year to date, headline inflation has risen 5.4%, while core inflation has gained 4.5% over that period, the biggest rise since November 1991.

Wall Street nevertheless was relatively blasé about the increase Wednesday, with many noting the jump was largely due to used car prices. Used cars and trucks gained 10.5% in value in June, more than one-third the total increase in the CPI. For the year, the price of a used car is nearly 50% higher than it was a year ago.

“We believe this will be the peak in the annual rate of inflation as the strong base effects subside in the coming months and wholesale price increases for used cars and trucks have moderated,” Kathy Bostjancic wrote of Oxford Economics in an investor’s note. “While we share the [Federal Reserve’s] view that this isn’t the start of an upward inflationary spiral, we look for inflation to remain persistently above 2% through 2022.”

Markets dipped slightly after the news, with the S&P 500 on pace to notch another record closing.

Andrew Hunter, senior U.S. economist at Capital Economics, also predicts that used car prices will soon peak and that inflation will consequently begin to fall in the coming months.

“We expect a sustained acceleration in wage growth to ensure that core inflation drops back only gradually over the coming quarters,” he cautioned, adding a prediction of 2.8% CPI inflation next year, much higher than what the central bank forecasts.

Fiscal hawks see the data as justification for worry. “We are seeing a reacceleration in service price inflation, now combined with aggressive goods price inflation,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Services, adding that “the price increases being passed on to the rest of us is really only beginning.”

Boockvar noted that rental increases are likely to boom in coming months, which will then drive higher service prices and goods prices “well into 2022.”

Other segments of the economy saw an increase, as well, though not as dramatic. Food prices gained 0.8% in June, double the increase reported the prior month, while new-car prices gained 2%, the strongest monthly boost since May 1981.

Core inflation had already risen 0.6% last month, though that data also did little to move the needle for investors.

Several Federal Reserve governors have been increasingly vocal about tapering the central bank’s bond purchases and raising interest rates to combat inflationary pressures, and a survey by the Federal Reserve Bank of New York released on Monday found an increase in consumers’ short-term inflation expectations.

Median inflation expectations rose 0.8% last month to hit 4.8% at the one-year mark, according to the survey, the highest mark for the 9-year-old survey.

Investors are likely waiting for remarks by Fed Chairman Jerome Powell, who is scheduled to speak before the Senate and House on the economy. Many experts have said the central bank is primed to announce sometime in the fall that it will soon raise interest rates, though it is a near-certainty Powell would not break such news before Congress.

Powell has consistently said that he believes inflation to be transitory, blaming the rise in prices on pandemic-related labor shortages and supply chain bottlenecks.

In its monetary policy report, the Fed last Friday also stated that “prices for some services, such as airfares and lodging, have moved up sharply in recent months toward more normal levels as demand has recovered.” The Fed stressed in the report that the longer-term inflation expectations are “broadly consistent” with the central bank’s inflation objective.

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