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Livesquawk - US Inflation Hits 13-Year High In June On Supply Bottlenecks
US Inflation Hits 13-Year High In June On Supply Bottlenecks

 

- Annual core inflation highest in three decades  

- Reopening of economy causes bottlenecks in supply chain 

- Used cars and trucks continue sharp rise 

- Blowout inflation reading heaps pressure on Fed 

- Fed’s Powell expected to reiterate transitory nature of inflation  

 

 

By Harry Daniels 

LiveSquawk News 

@HarryDaniels71 

  

13 July 2021|15.00 GMT 

 

 

US inflation surged last month as prices saw the largest one-month change since June 2008.  

 

The US Bureau of Labor Statistics said CPI rose 0.9% month-on-month in June, exceeding the 0.5% expected and the 0.6% last month. Annually, CPI increased 5.4% compared with May’s 5.0%. In the 12 months to June, core CPI jumped to its highest level since 1991, and the 4.5% reading beat the 4.0% forecast and the 3.8% mark from May.  

 

Morgan Stanley analysts said the mix of drivers on the upside in June looked similar to prior two months, with the bulk of price support coming from transitory shifts in components impacted by supply bottlenecks as well as the ongoing recovery in reopening-sensitive sectors. Underlying, and the likely more persistent components, remained firm. 

 

The bureau said the “index for used cars and trucks continued to rise sharply, increasing 10.5% in June. This increase accounted for more than one-third of the seasonally adjusted all items increase.” There was also upside contributions from food, up 0.8% in June from 0.4% in May, and the energy index, which increased 1.5% on the month.  

 

In the immediate aftermath, market participants noted the flattening of the US treasury curve with a lift in short-term bond yields.

 

Source: BLS

“On the transitory side – used car prices, which have been on a tear, posted yet another record increase,” said analysts at Morgan Stanley. “That likely reflects lagged pass-through of past increases in the industry data into the CPI but looking ahead we should see used car price increases begin to decelerate as more recent industry data has started to turn modestly lower.” 

 

In Transition

Citibank analysts took a similar view. “June could be the last month where CPI is overwhelmingly driven by ‘transitory’ factors, meaning the coming months of CPI data should again give us new information on the path and underlying trend of inflation." 

 

However, Mickey Levy from Berenberg Capital Markets said the debate about temporary versus persistent inflation will be resolved by future growth in aggregate demand.  “If, as we and the Fed project, strong nominal spending growth persists after the current spurt as the economy reopens, then inflation pressure will also persist, reflecting higher production costs and business flexibility to raise consumer product prices.  Fuelled by tons of pent-up demand and consumer purchasing power, it is starting to look more and more like a stylised cyclical inflation driven by excessive monetary and fiscal ease.” 

 

We’ll hear first-hand the thoughts of Fed Chair Jerome Powell, who is set to deliver the Semi-annual Monetary Policy Report to the Congress on Wednesday and Thursday.  

 

Last Friday, the Federal Reserve released the new Monetary Policy Report submitted to the committee, in which it reiterated its stance that the current elevated inflation outlook was due to “largely transitory factors.”