This post was originally published on TKer.com
We’ve discussed how Fed-sponsored market beatings would continue until we got “clear and convincing” evidence that inflation was coming down.
We did not get that evidence last week.
On Wednesday, we got a surprisingly hot consumer price index (CPI) report that followed last month’s surprisingly hot report.
In June, CPI jumped 1.3% month-over-month (highest since September 2005), driven by a 7.5% surge in energy prices that was underpinned by an 11.2% increase in gasoline prices.
CPI was up 9.1% on an annual basis, the biggest jump since November 1981. Energy prices were up 41.6% (highest since April 1980) and food prices were up 10.4% (highest since February 1981).
Excluding food and energy prices, which tend to be much more volatile in the short-run, core CPI accelerated to a hotter-than-expected 0.7%. This reflected a 5.9% gain from a year ago, which was below the peak of 6.4% print in March.
And while the annual increase in core CPI was off of its high, it was still high. The fact that the monthly rate is accelerating brought no comfort to anyone.
Core goods prices increased by 0.8% month-over-month and core services prices rose by 0.7%. The inflation was broad-based, with notable price gains for cars, clothes, and medical care. Hotel prices and airfares fell.
Michael McDonough, chief economist at Bloomberg, shared this great visualization breaking down what’s been driving CPI growth.
Shelter — a core service which accounts for a heavy 32% of CPI — was up 0.6% in June from a month ago. This includes rent of primary residence (a.k.a., tenants’ rent), which accelerated to 0.8% (highest since April 1986), and owners’ equivalent rent (i.e., how much a homeowner would have to pay to rent their currently owned home), which accelerated to 0.7% (highest since August 1990).
Bottom line: Inflation right now is about a lot more than volatile food and energy prices. The price for pretty much everything is inflating.
Sentiment remains in the dumps
Worries about inflation continue to keep consumer and business sentiment depressed.
According to the University of Michigan’s July Survey of Consumer Sentiment released Friday, consumers are particularly gloomy about the state of their personal finances. From the survey’s director Joanne Hsu: “Current assessments of personal finances continued to deteriorate, reaching its lowest point since 2011… Consumers remained in agreement over the deleterious effect of prices on their personal finances. The share of consumers blaming inflation for eroding their living standards continued its rise to 49%, matching the all-time high reached during the Great Recession.“
On Tuesday, the National Federation of Independent Business reported that its June small business Optimism Index fell to its lowest level since January 2013 as inflation concerns persisted. From the report: “Thirty-four percent of owners reported that inflation was their single most important problem in operating their business, an increase of 6 points from May and the highest level since 1980 Q4.“
Read More: Inflation problems persist