US June consumer prices post largest gain in 13 years on travel costs; inflation has likely peaked

WASHINGTON — US consumer prices increased by the most in 13 years in June amid supply constraints and a continued rebound in the costs of travel-related services from pandemicdepressed levels as the economic recovery gathered momentum.

With used cars and trucks accounting for more than one-third of the surge in prices reported by the Labor Department on Tuesday, economists continued to believe that higher inflation was transitory, aligning with Federal Reserve Chair Jerome Powell’s long-standing views.

The yield on the benchmark 10-year Treasury note briefly shot up before retreating as investors concluded that the US central bank would likely maintain its ultra easy monetary policy stance for a while. Mr. Powell will present the semiannual Monetary Policy Report to the US Congress on Wednesday.

“June’s CPI numbers looked scary, but once again, we see that it was mainly temporary price increases that pumped up the figures,” said Robert Frick, corporate economist with Navy Federal Credit Union in Vienna, Virginia. “Overall, this report is consistent with inflation cooling off later this year.”

The consumer price index (CPI) increased 0.9% last month, the largest gain since June 2008, after advancing 0.6% in May. Economists polled by Reuters had forecast the CPI would climb 0.5%. Used cars and trucks prices accelerated 10.5%. That was the biggest jump since Jan. 1953 when the government started tracking the series. Used cars and trucks have been the major driver of inflation in recent months.

They surged a record 45.2% on a year-on-year basis. A global semiconductor shortage has undercut motor vehicle production. New motor vehicle prices also rose solidly. Demand is mostly being driven by rental companies, desperate to restock after offloading their fleets at the height of the pandemic. Industry data suggest used car and truck prices will soon cool off.

But there are signs that inflation is spreading beyond the sectors at the center of the economy’s reopening, with consumers paying more for food, gasoline, rents and apparel last month. That could sharpen criticism of the very accommodative monetary and fiscal policies. COVID-19 vaccinations, low interest rates and nearly $6 trillion in government relief since the pandemic started in the United States in March 2020 are fueling demand, straining the supply chain.

White House officials are cautiously optimistic that the current increase in prices will be transitory, citing a continued drop in forward prices for lumber and other goods that experienced sharp increases as a result of supply chain bottlenecks. Steel capacity had also risen substantially over the past few months, they said.

In the 12 months through June, the CPI jumped 5.4%. That was the largest gain since Aug. 2008 and followed a 5.0% increase in May. Excluding the volatile food and energy components, the CPI accelerated 0.9% after increasing 0.7% in May. The so-called core CPI surged 4.5% on a year-on-year basis, the largest rise since Nov. 1991, after advancing 3.8% in May.

Stocks on Wall Street were mixed. The dollar gained versus a basket of currencies. Longer-dated US Treasury prices rose.

TRANSITORY INCREASE

The US central bank slashed its benchmark overnight interest rate to near zero last year and is pumping money into the economy through monthly bond purchases. It has signaled it could tolerate higher inflation for some time to offset years in which inflation was lodged below its 2% target, a flexible average.

The Fed’s preferred inflation measure, the core personal consumption expenditures price index, jumped 3.4% in May, the largest gain since April 1992. Minutes of the Fed’s June 15-16 policy meeting published last week showed “a substantial majority” of officials saw inflation risks “tilted to the upside,” and the central bank as a whole felt it needed to be prepared to act if those risks materialized. —