Key inflation indicator up 3.5% year over year in June for fastest gain since 1991

[mahatmakanejeeves]

Source: CNBC

ECONOMY

Key inflation indicator up 3.5% year over year in June for fastest gain since 1991

PUBLISHED FRI, JUL 30 2021 8:32 AM EDT UPDATED 3 MIN AGO

Jeff Cox
@JEFF.COX.7528 https://facebook.com/jeff.cox.7528
@JEFFCOXCNBCCOM https://twitter.com/JeffCoxCNBCcom

KEY POINTS

-- An inflation gauge followed closely by the Federal Reserve increased 3.5% year over year in June, slightly below the 3.6% estimate.

-- Consumer spending rose 1%, faster than expected as personal income also increased.

-- Labor costs rose as well, with compensation rising 2.9% from a year earlier.

An inflation indicator that the Federal Reserve uses as its key guide rose 3.5% in June, a sharp acceleration that was nonetheless right around Wall Street expectations, the Commerce Department reported Friday.

The personal consumption expenditures price index, which excludes food and energy, was expected to increase 3.6% at a time when the U.S. economy has seen its highest inflation pressures in more than a decade. ... That gain was slightly ahead of the 3.4% May increase and represents the biggest move since July 1991.

Fed officials have said they expect the inflation surge to be transitory as it has come largely from industries sensitive to the economic reopening, as well supply chain bottlenecks and other issues likely to fade. The central bank targets 2% as its desired inflation goal, though officials are willing to tolerate higher levels temporarily as the economy tries to get back to full employment.

The core PCE index rose 0.4% month over month, which was below the 0.6% Dow Jones estimate, indicating that inflationary pressures may be starting to ebb at least a bit. ... Personal income and spending numbers, however, were better than expectations as consumers flush with stimulus cash kept the economic rebound going.

Income rose 0.1%, better than the estimate for a 0.2% decline, while spending increased 1% against a 0.7% forecast. ... Employment inflation also continued to increase.

{snip}

Read more: https://www.cnbc.com/2021/07/30/key-inflation-indicator-up-3point5percent-year-over-year-in-june-vs-3point6percent-estimate.html

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BIG LETTERS: FROM JUNE 2020 TO JUNE 2021. ON AN ANNUAL BASIS. THIS IS NOT AN INCREASE IN JUNE 2021.

Hat tip, another site.

Earlier, kind of misleading LBN news snippet:

The Fed's favorite price index rose 4 percent.

https://www.nytimes.com/2021/07/30/business/economy/the-feds-favorite-price-index-rose-4-percent.html

Daily Business Briefing

The Fed's favorite price index rose 4 percent.

By Jeanna Smialek
July 30, 2021, 8:37 a.m. ET

The Federal Reserve's favorite inflation index climbed by 4 percent in June compared with a year earlier, as a rebounding economy and soaring demand for goods helped to push prices higher.

The gains in the Personal Consumption Expenditures inflation index were the fastest since 2008, but in line with economists expectations. That rapid pace is not expected to last, but how much and how quickly it will fade is the economic question of the moment.

Inflation has been surprisingly rapid this year. Economists knew prices would post strong increases as they were measured against weak figures from 2020, when costs for many common purchases slumped. But the jump has been more intense than most were expecting.

That's partly because supply bottlenecks have emerged across America's reopening economy. Computer ship shortages pushed up the prices of electronics and delayed automobile production, causing used car prices to surge. Employers are struggling to hire back workers fast enough to meet returning demand, and prices for restaurant meals and some other services have begun to move higher.

June's personal consumption expenditure price data may be a high point in the inflationary saga. Last year's low figures are fading from the data, and many economists expect the rapid pace of price gains to begin to moderate in the coming months.

On a monthly basis, inflation climbed 0.5 percent from May to June, slightly less than the 0.6 percent economists in a Bloomberg survey had expected. The core inflation index, which strips out volatile food and fuel, climbed 3.5 percent over the past year.

{snip}

-- -- -- -- -- --

From the source:

https://www.bea.gov/news/2021/personal-income-and-outlays-june-2021-and-annual-update

News Release

EMBARGOED UNTIL RELEASE AT 8:30 A.M. EDT, FRIDAY, JULY 30, 2021
BEA 21-37

Personal Income and Outlays, June 2021 and Annual Update

Personal income increased $26.1 billion (0.1 percent) in June according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income (DPI) decreased $2.6 billion (less than 0.1 percent) and personal consumption expenditures (PCE) increased $155.4 billion (1.0 percent).

Real DPI decreased 0.5 percent in June and Real PCE increased 0.5 percent; goods decreased 0.2 percent and services increased 0.8 percent (tables 5 and 7). The PCE price index increased 0.5 percent. Excluding food and energy, the PCE price index increased 0.4 percent (table 9).

{snip}

[WA-03 Democrat]

1. Thanks for posting this

[mahatmakanejeeves]

2. Additional link:

Dave Weigel

JUST IN: A key price index shows inflation grew slower than expected in June.

The PCE rose 0.4% — slower than the expected 0.6%. It is the measure that the Federal Reserve watches most closely.

Link to tweet

[GB_RN]

3. Once Again, Badly Written Title (Not By OP)

Year over year data from 2020 are NOT relevant, as you can't compare an apples to oranges situation from the lockdown. The inflationary data should have been compared to 2019 by the author(s).

The OP points out that the author(s) is/are misleading.

[oldsoftie]

5. Yes, they should show comparisons to BOTH '19 & '20

Then we can see what the real increase was.
Although I'm sure the Biden Administration will also proclaim the huge job increase numbers since Jan too. They should use both years in both cases, or they'll get the sky-is-falling inflation ads from the GOP

[groundloop]

6. Sky is Falling Inflation Bullshit has Already Permeated Social Media

But not a single one of the right wingers I've encountered posting the shit will even acknowledge that last year is an invalid comparison, or that a period of inflationary pressure was totally expected as the economy restarted.

[oldsoftie]

8. Just like gas price increases. Last year NOBODY WAS DRIVING

Or flying. Or much of anything else!!

[RussBLib]

4. we are overdue for some inflation

what did we expect? All that pent-up demand has to go somewhere. And people are finally sick and tired of working long hours for low pay and no benefits.

[peppertree]

7. PCE (aka chained dollars) is nonsense designed to fluff up growth numbers

Even the CPI inflation number - already thought to be understated as it is - chalked up 4.8% in the 2nd qtr, compared to year-ago levels.

PCE would be credible if it were a few tenths of a % off - but 3.5%, against 4.8%?

And it's almost always lower - often much lower - than CPI, which is why Repugs keep trying to use it to calculate Social Security payments.

[mahatmakanejeeves]

11. Regarding the various flavors of CPI:

Here's an oldie but a goodie.

Note that today's thing being measured is PCE, the personal consumption expenditures price index. The Bureau of Economic Analysis does this. It's in the Department of Commerce.

CPI, the consumer price index, is measured by the Bureau of Labor Statistics. That's in the Department of Labor.

Wed May 12, 2021: Regarding the various flavors of CPI:

Some time ago, I had a post that went into the various types of CPI. Here it is. It might be outdated by now, but I've never let a thing like that stop me in the past, so why start now?

Wed Jun 12, 2019: BLS Report: CPI for all items rises 0.1% in May as shelter, food indexes increase

More on the CPI:

Set the WABAC Machine for a year ago:

BLS Report: CPI-U for all items rises 0.1% in June as shelter, gasoline, food indexes increase

From CPI for all items falls 0.1% in December as energy and food indexes decline:

Not all CPI's are alike. For an earlier discussion at DU about that, see:

CPI for all items rises 0.2% as gasoline and shelter prices rise; food prices decline

From the zeroeth post:

I added the bolding.

Cryptoad points out the significance of the CPI-W. It is used to calculate Social Security's Cost-of-Living Adjustment (COLA):

Based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2013 through the third quarter of 2014, Social Security and Supplemental Security Income (SSI) beneficiaries will receive a 1.7 percent COLA for 2015.

Consumer Price Index Frequently Asked Questions (FAQs)

What goods and services does the CPI cover?

The CPI represents all goods and services purchased for consumption by the reference population (U or W) BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups. Major groups and examples of categories in each are as follows:
FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
APPAREL (men's shirts and sweaters, women's dresses, jewelry)
TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);
EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).

The CPI-U is used by the Treasury Department to set the interest rates on I Bonds.

I Savings Bonds

How do I Bonds earn interest?

Interest on an I Bond rates is a combination of two rates:
1.A fixed rate of return which remains the same throughout the life of the I Bond

and
2.A variable inflation rate which we calculate twice a year, based on changes in the nonseasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy (CPI-U for March compared with the CPI-U for September of the same year, and then CPI-U for September compared with the CPI-U for March of the following year).

In specific, there is a discussion of the Cost of Living Index here:

Let's look at that.

The CPI-W is discussed here:

CPI-W methodology

- - - - -

Note that there is a:

Consumer Price Index for All Urban Consumers (CPI-U)

Chained Consumer Price Index for All Urban Consumers (C-CPI-U)

Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)

The fine print goes into the distinction.

Here's the thread from three months ago about the March CPI:

CPI for all items rises 0.2% as gasoline and shelter prices rise; food prices decline

Cryptoad points out the significance of the CPI-W. It is used to calculate Social Security's Cost-of-Living Adjustment (COLA):

Based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2013 through the third quarter of 2014, Social Security and Supplemental Security Income (SSI) beneficiaries will receive a 1.7 percent COLA for 2015.

Consumer Price Index Frequently Asked Questions (FAQs)

What goods and services does the CPI cover?

The CPI represents all goods and services purchased for consumption by the reference population (U or W) BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups. Major groups and examples of categories in each are as follows:
FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
APPAREL (men's shirts and sweaters, women's dresses, jewelry)
TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);
EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).

The CPI-U is used by the Treasury Department to set the interest rates on I Bonds.

I Savings Bonds

How do I Bonds earn interest?

Interest on an I Bond rates is a combination of two rates:
1.A fixed rate of return which remains the same throughout the life of the I Bond

and
2.A variable inflation rate which we calculate twice a year, based on changes in the nonseasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy (CPI-U for March compared with the CPI-U for September of the same year, and then CPI-U for September compared with the CPI-U for March of the following year).

[DallasNE]

9. Headline Is Wrong

In 2008 the inflation rate was 3.84%

https://www.macrotrends.net/countries/USA/united-states/inflation-rate-cpi

[mahatmakanejeeves]

10. This is PCE, not CPI, and 2020 to 2021, not in the year 2008. NT

[peppertree]

12. Officially!

Those CPI numbers during Bush's second term were getting the 'Rove massage' - just like the budget deficit figures were.

If you go back to federal budget deficit numbers for the 2004-08 period, they all exclude war spending (which reached $170 billion at their height in '08).

The same with CPI numbers.

You'll recall that they were always "3-point-something" at the time. But we all remember the massive, double-digit hikes in everything from food, to gas, to rent, health care, insurance - you name it.

Goebbels 101: 'people don't remember reality, as much as they remember the narrative'

And Rove (himself the son of a Norwegian Nazi) was a big fan.