Secondhand vehicle purchases, car, van and truck rental, food, energy, clothing, travel (plane) tickets and hotels rose sharply in June 2021
The cost of living climbed by the largest amount since 2008 as inflation spreads more broadly through the U.S. economy.
Transitory inflation?
Fresh questions about whether the spike in prices will subside as quickly as the Federal Reserve predicts are back in focus again. Some analysts are now saying that not only is the U.S. economy hot – it is white hot!
Price jump
For the 12 month period, used car and truck prices jumped 45.2%, while car and truck rental costs climbed to 87.7%. Fuel rose by 45.1% (figures according to U.S. Bureau of Labour Statistics).
What is normal?
The Federal Reserve has insisted for months now that widespread supply shortages will fade away once the U.S. and global economies return to normal. But how long will it take other economies to return to normal – even as the U.S. is making good recovery progress?
The U.S. central bank has repeatedly referred to the sharp increase in prices as transitory and predicted inflation would taper off toward its 2% target by next year, using its preferred PCE price measure.
That’s all very good but inflation is already 3.4% above target and that is already affecting consumers. We can all make predictions and then move the target.
Fed wrong?
The Fed did admit it was caught off guard by how high inflation has risen. There’s a risk inflation could stay higher for longer than it expected, according to minutes of the Fed’s most recent strategy session.
Inflation is at 5.4% now and prices are rising. How long before interest rate follow?
So far most investors appear to have been unperturbed, though the latest CPI is likely to stoke fresh worries.
I guess the Fed will keep pumping money in to the economy and remain supportive for some time yet. Or at least until it makes its own prediction come true…
Don’t forget – U.S. inflation is running at 5.4% that’s 3.4% above the Fed’s own target.
They didn’t predict that!
Beware of predictions and targets.