Rising energy and gasoline prices accounted for roughly half of the 0.6% increase month over month inside the June Consumer Price Index report and should prove transient due to easing demand on the back of an intensifying pandemic.
Excluding food and gasoline, prices increased 0.2% on the month and 1.2% on a year-ago basis.
That increase, for the most part, is the recovery in oil and gasoline prices following the pandemic-induced collapse in late spring. Excluding food and gasoline, prices increased 0.2% on the month and 1.2% on a year-ago basis, which is well below the central bank’s 2% target, according to figures released by the Labor Department on Tuesday.
The Federal Reserve will tend to look right past this and continue to focus on other near real-time and alternative data that imply the rebound in household consumption plateaued on or around June 24 and then eased. Through July 1, consumption was down 9% on a year-ago basis, which does not denote inflationary pressures in the pipeline ahead of the July pricing report.
Our preferred metrics of inflation all have eased noticeably since the turn of the year. Those metrics include year-over-year measures of CPI excluding rents, CPI excluding food and energy, as well as CPI excluding services and energy. The last of those, which we think provides one of the better metrics of pricing pressures during the pandemic into the market basket of the median household, increased by a tepid 1.57% on a year-ago basis.
It is hard to make the case that, given the weak demand for services as many states have either paused or started to roll back the reopening of their economies, there will be a demand-based increase in top-line or core inflation.
Until households are confident in resuming normal activity, demand for services is going to be impaired.
Until households are confident in resuming normal social and economic activity, demand for services is going to be impaired and policy risks around pricing will continue to be skewed to the downside.
When one thinks of inflation faced by the median household, that discussion typically turns to health care, housing and education. Housing costs were up 0.2% on the month, with the owners’ equivalent rent up 0.1% and OER of primary residencies up 0.1%.
On a year-ago basis, housing costs rose 2%, with OER residences and primary up 2.8%. Medical care costs increased 0.4% and are up 5.1% from a year ago, while education costs declined 0.1% on the month and are up 1.4% over the past year.
Inside the detail of the report, one will observe the 12.3% increase in gasoline prices; 5.1% in overall energy prices; 2% in meat, poultry and eggs; 1.7% in apparel; and 2.1% in transportation. The price of used autos declined by 1.2% on the month.
The increase in transportation costs were driven by a 2.1% increase in airline fares and 5.1% increase in motor vehicle insurance. The increase in transportation costs were linked to the increase in economic activity between May and June and will likely not be repeated in the July report.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
