US June Inflation Soars 5.4%... Highest in 13 Years

Used Cars and Airfare Continue Sharp Rise
June's Upward Trend Expected to Slow
Concerns Spread Despite Claims of Temporary Phenomenon
Attention Focused on Fed Chair Powell's Remarks Tomorrow

[Image source=AP Yonhap News]

[Asia Economy New York=Special Correspondent Baek Jong-min] U.S. inflation continued its upward trend in June, surpassing market expectations.

The U.S. Department of Labor announced on the 13th (local time) that the Consumer Price Index (CPI) for June rose 5.4% compared to the same month last year.

This is the largest increase in 13 years since August 2008. It exceeded the 5.0% expert forecast compiled by Dow Jones by 0.4 percentage points. The market expected the June CPI increase rate to remain at the same level as May, but the reality was different.

The June CPI also rose 0.9% compared to the previous month, significantly exceeding the market forecast of 0.5%.

The core CPI, excluding fuel and food, also rose 4.5% year-on-year, greatly surpassing the market expectation of 4%. The core CPI increase rate was the highest since 1991. The core CPI increase rate in May was 3.8%.

The core CPI also rose 0.9% on a monthly basis, showing that inflationary pressure has further expanded.

Bloomberg News analyzed that 30% of the June CPI increase was due to rising used car prices. The rise in used car prices caused by semiconductor supply shortages and the sharp increase in gasoline prices are the main factors driving inflation. Used car and truck prices surged 10.5% in June. Gasoline prices also rose 45.2% over the year. Food prices increased by 2.4% over the year. Airfare and clothing price increases also stimulated inflation.

The Wall Street Journal identified supply shortages and rising logistics costs as factors pushing prices higher.

The sharp rise in inflation is also affecting household consumption capacity. According to the Department of Labor, workers' average hourly earnings increased by 0.3%, but due to the CPI increase, real average earnings actually fell by 0.5%. This means income did not keep pace with rising prices.

The June CPI reconfirmed concerns that inflationary pressures could persist, despite the Federal Reserve (Fed) and the White House maintaining that inflation is temporary.

Rising housing rents are cited as a factor that could drive future CPI increases. Housing rents account for about 30% of the CPI. Although housing rents rose only 2.6% year-on-year, there is a high possibility of further increases if the impact of rising home prices is reflected.

Sarah House, Chief Economist at Wells Fargo, evaluated, "The June CPI showed that inflationary pressures are more severe than expected and will persist for a long time."

On the other hand, Cliff Hodge, Chief Investment Officer at Cornerstone Wealth, said that while the hot June CPI is unsettling the market, "There was a base effect last June when the core CPI sharply dropped due to the impact of COVID-19, but this situation will not continue."

A survey released a day earlier by the New York Federal Reserve showed that consumers expect prices to rise 4.8% over the next 12 months. Meanwhile, a Bank of America survey of experts showed more opinions that inflation is temporary.

With the June CPI again expanding its increase, attention is focused on the remarks of Fed Chair Jerome Powell, who will testify to Congress the following day. Chair Powell has maintained that inflation is temporary and has shown a negative stance on early interest rate hikes or asset purchase tapering.

The Wall Street Journal reported that the Fed, ahead of Powell’s testimony, also described inflationary pressures as temporary in a report submitted to Congress.

Despite the rise in inflation, the market has not shown significant changes. After the CPI announcement, the U.S. 10-year Treasury yield rose slightly but then reversed to fall, currently standing at 1.356%.

As of 10:15 a.m. in New York stock market, the Dow Jones Industrial Average fell 0.12%, the S&P 500 fell 0.08%. The Nasdaq started down but turned to rise 0.11%. Major indices in the New York stock market had recorded all-time highs the previous day.

Companies such as JP Morgan, Goldman Sachs, and PepsiCo, which announced earnings on the day, are interpreted to have prevented a sharp decline in investment sentiment caused by the CPI.