Still Waiting for Inflation to Peak
Peter Bernstein, Chief Economist, pbernstein@rcfecon.com, 312-431-1540 x1515
The Current Situation
Before inflation can begin to fall, it must stop rising. Unfortunately, that still hasn’t happened as the June CPI report showed that prices were 9.0% higher (on a seasonally adjusted basis) than they were a year ago. There is little good news in the June report. Even the modest decline in core CPI inflation from 6.0% to 5.9% is misleading. Core prices rose 0.7% in June (8.4% annualized) indicating that core inflation is getting worse, not better. This statistical oddity illustrates an advantage of RCF’s focus on monthly price changes. Year-over-year inflation measures are driven by price changes that have occurred in the current month, as well as the 11 prior months, making it a less accurate reflection of recent trends. And recent trends show that while inflation continues to be driven by higher food and energy prices, even excluding these prices, inflation is rising across a broad range of goods and services.
A key contributor to higher consumer prices is higher producer prices. In fact, the producer price index (PPI) has risen more than the CPI – up 11.3% over the past year, and 6.3% in the past 6 months alone. The PPI gets less attention than the CPI but it’s unlikely consumers will see much relief from rising prices until producers see relief from the double-digit increase in their input costs.
RCF’s Inflation Scorecard
RCF’s Inflation Scorecard is based on analysis of 20 different price series comprising 98% of the total consumer price index. Each of these price series represents a portion of the CPI based on household spending patterns. For example, food purchased for at-home consumption is about 8% of the typical consumer’s budget; it has a weight of 8.17 out of a total index of 100 as detailed later in this report.
Our scorecard presents two metrics to track month-to-month price increases.
The first metric is the share of the index for which inflation in the most recent month is rising (greater than the prior month’s inflation) vs. the share of the index for which inflation is falling (lower than the prior month) or prices fell (deflation). In June, 62.6% of the components showed rising inflation while only 27.6% showed declining inflation. The 62.6% weight of rising inflation is the highest monthly level shown in the chart.
Our second metric is the share of the index for which the most recent month’s inflation exceeded 0.2%, a monthly rate that corresponds closely to the Federal Reserve’s target inflation rate of 2% per year. In June, a stunning 89.6% of the CPI components increased in price by more than 0.2%. That’s a slight improvement over the 91.3% value in May but the data continue to show that virtually all the CPI components have inflation rates that exceed the Fed’s goal. No reason to expect the Fed to slow its pace of rate increases until we see some improvement in these metrics.
RCF Inflation Scorecard: June 2022
Analysis of Individual Components of the Consumer Price Index
Highlights:
- It got much more expensive to own a car in June. Not only did motor fuel prices jump 11.0% in the month, but vehicle insurance and vehicle maintenance/repair prices each rose about 2.0% in June. Add in the 0.7% increase in new vehicle prices and the 1.6% increase in used vehicle prices and you can understand why vehicle sales remain well below their pre-pandemic levels.
- Rent and owner’s equivalent rent prices have become a major driver of higher inflation because together they constitute more than 30% of the CPI basket. Rents rose 0.8% in June and owners’ equivalent rent increased 0.7%. Although the year-over-year inflation measures are not especially high (5.8% and 5.5%, respectively), the monthly inflation rates are trending higher and higher.
- Prices for lodging away from home and public transportation fell in June, though they are up 10% and 24% from a year ago.
- Want some good news: prices for alcoholic beverages are up only 4.0% from a year ago. But whatever you do, don’t drink and drive. It’s not safe and the driving part is too expensive anyway.
Sources: Bureau of Labor Statistics and RCF Calculations. 1. Inflation direction indicates whether monthly inflation in June was higher or lower than monthly inflation in May. Deflation means prices fell in June compared to May.
