US CPI shows cost of living rising biggest since 2008, as inflation spreads across the economy

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The numbers: The cost of living jumped in June by the most since 2008 as inflation spread more widely across the US economy, raising new questions about whether the rise in prices will abate as quickly as the Federal Reserve expects.

The government said on Tuesday that the consumer price index rose 0.9% last month. The cost of used cars accounted for more than a third of the increase, but prices for food, energy, clothing, airline tickets and hotels also rose sharply.

The increase easily exceeded expectations. Economists polled by the Wall Street Journal estimated the poll is a 0.5% advance.

Inflation in the twelve months to June rose to 5.4% from 5%. The last time prices rose so quickly was in 2008, when oil hit a record high of $150 a barrel.

Another closely watched measure of inflation that strips out volatile food and energy also rose 0.9% in June. The 12-month rate rose to 4.5% from 3.8% and settled at a 29-year high.

Economists follow this core rate more closely as a more accurate measure of core inflation.

Read: High inflation in the US will not go away yet. Here’s why

The big picture: The rapid economic recovery had an unwanted side effect: rising inflation.

Companies can’t get enough supplies or labor to keep up with rising sales, forcing them to pay higher prices for just about everything. In return, they try to pass those additional costs on to the customers.

Read: Job opportunities have reached 9.2 million, but workers are not easy to find العثور

The Federal Reserve has been insisting for months that the widespread shortages will vanish once the US and global economies return to normal.

The same for inflation. The central bank has repeatedly referred to the sharp increase in prices as “temporary” and predicted that inflation would decline toward its 2% target by next year, using its preferred PCE price measure.

However, even the Federal Reserve admits to being surprised by how high inflation has gone up. Risk inflation may remain higher for longer than expected, according to the minutes of the Federal Reserve’s latest strategy session.

Read: Fed admits inflation rose much higher than expected, but still insists rate increases are temporary

So far most investors have not been alarmed, although the latest CPI is likely to raise new concerns.

Key details: The cost of used cars rose by a record 10.5% in June after huge gains of 7.3% in May and 10% in April. This category alone accounted for more than a third of the increase in overall consumer prices last month.

However, these price increases will not last long. Automakers are rushing to produce more new cars and trucks, and eventually the used car market will return to normal.

The cost of gasoline also rose 2.5% last month and was another big contributor to inflation. Gas prices are up 45% in the past year.

Most worrisome was the largest increase in food prices since 2011, with the exception of the first few months of the pandemic. Higher food prices suggest that some inflation is spreading more widely across the economy.

However, most of the increase in consumer prices last month was focused on goods and services whose prices fell sharply in the early stages of the coronavirus pandemic last year. Not only used vehicles, but price lists of airline tickets, hotels and restaurants.

These price increases are likely to subside soon, supporting the Fed’s argument that the rise in inflation will be temporary.

The cost of two other major consumer expenditures, shelter and medical care, is also somewhat tamed. Rents have increased less than 2% in the past year and Medicare costs have increased less than 1%.

what are they saying? “The rise in inflation remains primarily related to Covid and temporary as outliers continue to drive a lot of price increases,” said Ben Ayers, chief economist at Nationwide. “But the effects of the latest jump may linger for some time as costs rise above average until 2022.”

Is the ‘temporary’ debate over? asked chief economist Jennifer Lee of BMO Capital Markets. The answer is no, the temporary debate is not over yet. In fact, it’s getting hotter.”

Market reaction: The Dow Jones Industrial Average, -0.16% and the S&P 500 SPX, +0.05% were down slightly in Tuesday’s trading. However, the yield on the 10-year US Treasury TMUBMUSD10Y, 1.351%, was little changed.

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