U.S. CPI inflation

The story is still (mostly) about reopening and motor vehicle supply issues

The Consumer Price Index was up 0.9% in June compared to May on a seasonally-adjusted basis, and up 5.4% compared to June 2020.

Here’s the breakdown of what happened on a month-over-month basis:

Outside of a few categories that are either experiencing significant idiosyncratic supply constraints or healthy price normalization due to reopening, prices rose about as much as could reasonably be expected.

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The year-over-year numbers tell a broadly similar story. This chart is focused on the sources of the acceleration in the yearly CPI inflation rate from February 2020 (2.3%) to June 2021 (5.4%).

A lot of these moves are likely to reverse. Energy prices won’t continue to contribute 1.5 percentage points to the yearly inflation rate—up from 0.2 percentage points in February 2020—unless oil skyrockets close to $200/barrel. Used car prices will probably fall once temporary supply issues are sorted, but even before then, they will probably stop rising at their recent pace, which should be a strong disinflationary impulse in the next year or so.

On the other side, the disinflation in housing and the CPI measure of health insurance prices are probably temporary as well.

There are important differences between the CPI and the Personal Consumption Expenditure price index, which is what the Fed tracks. Differences in definitions, measurement, and weighting—especially for housing and health care—mean that the PCE price index has been less volatile both during the initial stages of the pandemic and in the reopening. That divergence will probably continue (if not widen) in the months ahead.