- Consumer prices rose 0.6% month/month in June, the first increase since COVID-19 hit. Total CPI was up 0.6% year-on-year, an acceleration from only 0.1% in May.
- Energy prices increased for the first time in six months, up 5.1% in June. The price of gasoline rose 12.3% m/m, but remained 23.4% below year-ago levels. In contrast, food prices were up 4.5% versus a year ago, after another hearty increase in June (+0.6% m/m). Beef prices increased again last month (+4.8% m/m), and have risen 20.4% over the past three months alone.
- After three consecutive months of declines, core prices rose 0.2% m/m in June. As a result, core inflation was 1.2% on a year/year basis, matching May’s pace.
- After significant discounting earlier in the pandemic, prices for many categories rebounded in June. Leading the way was motor vehicle insurance prices, up +5.1% m/m. Apparel prices also bounced back (1.7% m/m). On the services side, core services prices were up a solid 0.3% m/m, driven in large part by a 0.5% increase in medical services costs. Medical services inflation is now up 6.0% year/year, the fastest rate of inflation since the early 1990s. Many aspects of medical care have seen prices accelerate in recent months, but the most dramatic is health insurance costs, which are up almost 20% over the past year. Prices also rebounded for airline fares (+2.6% m/m) and car and truck rentals (+17.5%).
- Some price weakness did persist in June, with prices for used vehicles continuing to fall (-1.2% m/m). Recreation prices were also lower (-0.6% m/m), as were communication (-0.3% m/m), while new vehicles prices remained unchanged. Inflation pressures for shelter have also cooled a bit, with rent of primary residence up a modest 0.1% m/m, the softest pace since 2011. Owner’s equivalent rent was also up only 0.1% on the month.
- In-person data collection continued to be suspended by the Bureau of Labor Statistics in June, which in addition to many business closures disrupts the typical data collection process. Response rates continued to be lower than in 2019, but did tick up from May, as more businesses reopened.
Key Implications
- June’s CPI data shows evidence of price changes in response to a re-opening economy. As Americans hit the roads again, prices for gasoline and vehicle insurance rebounded, among other areas like airline fares, car and truck rentals and apparel. Overall inflation remained muted, but it may not feel that way for many consumers who have seen hefty price hikes for essentials like food and health insurance.
- As discussed in our recent report, reduced demand has dramatically lowered inflation pressures. This is exactly why the Federal Reserve acted decisively early in the crisis to stave off the risk of a deflation trap. June’s data provides evidence that some of these deflationary forces have ebbed, however, some of the more persistent categories in inflation, namely shelter, continued to cool in June. With shutdowns returning across many parts of the country, prices may see renewed downward pressure. All told, we expect inflation to remain muted over the next couple of years.
