Following an unprecedented 3 consecutive month decline in core CPI. the BLS reports the CPI jumped 0.6% in June with the core CPI up 0.2%.
Key Points Month-Over Month
- The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in June on a seasonally adjusted basis after falling 0.1 percent in May.
- The gasoline index rose sharply in June after recent declines and accounted for over half of the monthly increase in the seasonally adjusted all items index.
- The energy index increased 5.1 percent in June as the gasoline index rose 12.3 percent.
- The food index also rose in June, increasing 0.6 percent as the index for food at home continued to rise.
- The index for all items less food and energy rose 0.2 percent in June, its first monthly increase since February.
- The index for motor vehicle insurance increased sharply in June after recent declines.
- The indexes for apparel, shelter, and medical care also increased in June, while the indexes for used cars and trucks, recreation, and communication all declined.
CPI and Core CPI Year-Over-Year
Key Points Year-Over Year
- The all items index increased 0.6 percent for the 12 months ending June; this compares to a 0.1-percent increase for the 12 months ending May.
- The index for all items less food and energy increased 1.2 percent over the last 12 months.
- The food index increased 4.5 percent over the last 12 months, with the index for food at home rising 5.6 percent.
- Despite increasing in June, the energy index fell 12.6 percent over the last 12 months.
CPI, Medical CPI, and OER
CPI Distortions
Anyone buying their own medical insurance, those in college, and those looking to buy a home, and those in areas with high rent a home will dispute the stated CPI.
The BLS does not directly factor in the price of homes into the CPI. Rather the BLS goes through a ridiculous process in which it asks people how much they would rent their their own house from themselves and uses that number as Owners’ Equivalent Rent (OER).
Nor does the BLS factor in soaring equity prices. And that is the primary place inflation has turned up now.
CPI Jump Won’t Last
Inflationistas will point to the 0.6% rise and once again say “here we go”.
But those expecting a big jump in the CPI as calculated will be wrong again.
Covid accelerated trends toward more work at home, less driving, less eating out, and fewer business meetings in person.
These factors will easily outweigh government stimulus and Fed manipulations.
State Claims Decline But All Unemployment Claims Are on the Rise
Related Articles
- State Claims Decline But All Unemployment Claims Are on the Rise
- Fewer People Pay Their Rent on Time in July
- Producer Price Deflationary Trends Cast Doubt On the Recovery
- Millennial Renters Abandon Their Plans to Buy a Home
- A Surge in Small Business Bankruptcies is Underway
There is nothing inflationary about the above trends.
Importantly, some 20 million to 30 million people are out of work and will remain out of work, on life support of State Unemployment Insurance plus pandemic assistance.
Demand destruction is massive. It is too great for the CPI, as constructed, to jump on a sustained basis.
Mish
I don’t how food prices experience price decreases long term with the production capacity being pounded….restaurants/eating out is a somewhat different matter in my mind from the food supply itself.
Time will tell obviously.
CPI is just an advisory data, cant be a sole discretionary or tool for decision making here is link to one of our article on Covid-19: A challenge or an opportunity for Private Equity firms? click on link to read more for our piece of blog https://magistralconsulting.com/covid-19-a-challenge-or-an-opportunity-for-private-equity-firms/
Mish, in the late sixties through the seventies and into 1980 we had flat economies at best and a lot of periods of unemployment, lay offs, factory closings, off shoring of our manufacturing sector, trade deficits that for that era were considered serious, gas rationing, and the budding wealth inequality that is now so entrenched it threatens our way of life. We also had double digit inflation year after year that was so stubborn it did not even respond to President Ford’s genius idea of everyone wearing a WIN (whip inflation now) lapel button. In fact it did not respond till Paul Volker raised the prime rate severaal times to 20%, nearly strangling the economy in the process, but after a couple years did get inflation under control.
I am here to say as much as I respect you and your views on economics and finance I simply cannot agree with the side that claims we are headed for deflation. Note there were a a lot of economic issues back int the stagflation days that you also would have called deflationary, but the only thing the inflation responded to was crushing interest rates that were actually higher than the inflation itself.
Now we have government and Fed policy that simply makes up inflation statistics as a series of plug numbers that they need in order to justify their negative real interest rate policy and support the asset values of the top 10%. That Mish is ALL there is to it now. Neither the Fed nor the federal government care a wet dog fart about anything except that and if the public >90% goes ape and has to be brutally supressed by militarized police so be it. They are printing money like it has never been printed before in human history and even though distribution of that is limited mostly to the top 10% AKA our betters or more realistically our owners, there can still only be one result from all this dollar creation and debasement, inflation, and eventually hyperinflation that will end in an economic collapse unlike anything man has ever seen before.
Not to presume to speak for Mish, but no one, including our host, has discounted either high inflation or hyperinflation in the long term. But it looks clearly not-on in the short to medium terms.
And as much as they are trying to create new money, it is proving very difficult to get it into the system, despite how incredibly cheap it is. Finding a worthy borrower–one you know won’t default–is difficult. Finding a worthy borrower who actually wants a loan (which infers economic expansion) even moreso.
So many differences between the Sixties and Seventies to today that the analogy is too weak for me to buy. Oil, for eg, is at the complete opposite end of the spectrum.
“Finding a worthy borrower who actually wants a loan…”
Well the US is triple A and has no qualms increasing the amount it borrows, last I heard ? I’m not even sure it can be called counter-cyclical anymore, more like a structural permanent feature. That Japan or EU or others have taken so much onto their balance sheets and still not hyperinflated is not exactly a fair reference either, it just speaks of where true prices would be otherwise. In effect prices “want to be” say a quarter of where they are today, they wanted to decrease in the past, the difference is an unmeasured inflation beyond the 2% target that shows nowhere except maybe money supply charts if they were crossed with various other real world factors.
So, while new debt is keeping this inflation serviced, down to zirp or whatever, we have absolutely no idea where inflation or deflation would stand. Instead it is just accepted that “relatively stable prices with low inflation” is the better or acceptable all round arrangement.
If it isn’t though, and true price discovery breaks through ?
Then you might have either serious deflation or hyperinflation, depending on what parts of the framework are used or fail, dependent of economic or political reality brought into play.
Yes Anda, and this is why I say the inflation data is a plug number made up in order to support fiscal and monetary policy at any given moment. The Fed and federal covernment can control the spigot of cash going into the economy and they will do their best to make sure it is enough to keep prices rising not falling. They do try to sterilize that so that that tidal wave of money does not hit the Main Street economy, but that pretty much requires limiting who can borrow to corporations and Wall Street, meaning the top 10% leaving the Main Street 90% of us out of the pie almost entirely. That is why those top 10% own more than 85% of all assets now. But, they have a catch 22, they need prices to rise so enough of that cash has to leak down to Main Street to keep deflation from happening, but no so much that it triggers hyperinflation. It must be a very fine tightrope to have to walk and will still one day have to take off on it’s own as a horrifying inflation, because the alternative will be a deflationary depression like nothing we can even concieve of.
Coronavirus was that puff of wind that nearly did (and may still) knock them off that tightrope. It shut down 40% of the economy almost overnight. But, anyone else notice how out of all the trillions that have gone into new bond issues and directly into equity prices for the top 10% Wall Streeters only about $400 billion AT MOST has gone directly to households of the lower 90%? This is how they sterilize that money creation to Wall Street, it remains to be seen if they can handle this large a pig in the snake without it causing hyperinflation, but it will cause inflation. Prices will begin to get unstable, that is why you will see that there will be some data points that seem to be pointing at deflation, but other things you will only experience in real life as an individual will tell you otherwise, like my power bills, I am pretty sure I will get my first $300 electric bill this month, and gasoline, even though demand is still down to the point that storage capacity is having a hard time with the glut of crude, my gasoline has shot up to $2.70 per gallon in just a matter of weeks, from $1.99. Landlords are having trouble collecting rents, some say that is deflationary because during this crisis it means overall collections have gone down, but some are finding that those who are not paying (either they pay partial rent or nothing at all) others are finding their rent rising, landlords are saying AHA we have someone who can pay so let them make up for the deadbeats.
Jay Powell has said and still says the Fed will use every tool in UNLIMITED quantities to support asset prices, and one of the tools they have long used to support asset prices is inflation. That was the entire rational behind targeted inflation in the first place, and the very concept of targeted (guaranteed) inflation only came about in the last several years since the GFC, and you can thank Mario Draghi for that, the ECB pioneered it. The BOJ tried it but only got the mother of all RE bubbles.
Once the rubble of Covid starts to clear, with a vaccine or effective treatment, we will start to see the economy normalize but with very much higher asset prices and inflation. That will get out of control. But Mish will be able to say he was right because eventually all hyperinflation ends in currency collapse and deflation. But will that mean a prolonged depression? Or a dark age for mankind?
+1.
The economic problems arising from inflation, always occur during the initial “boom” it naively appears to create. The ensuing “crash” is, economically, always a good thing, as it at least helps correct some of the worst dislocations to some degree.
The social problems, which are always, eventually and inevitably, caused by the above economic problems, do tend to increase during a crash, though. And those are the ones the sensationalist and less-than-insightful tend to focus on.
“The economy,” by mechanism of falling tulip prices, informing the Dutch that they should consider doing something a bit more useful and productive with their lives than trading tulips back and forth, is economically always a good thing.
Socially, OTOH, people starving to death because inflation have rendered them too incompetent to do anything more useful and complimecated than running around squabbling over who “owns” “the right” to some useless tulip bulbs in exchange for the funds required to feed themselves, are still people starving to death.
It’s the same story today. Now people are starving to death because inflation have rendered them too incompetent to do anything other than sit there and “make money off their home”, squabble over the “rights” to Musk’s latest toothfairy, and, to various degrees of intimacy, service idiots handed millions and billions in theft-by-inflation mediated Fed welfare payments.
But, economically, it is always people “making money” from a decaying home, and from picking random numbers, which is the economic problem. And those people losing it all back, is not just the solution, but the only possible solution. No matter how loudly they will inevitably scream and yell and crassly flaunt their economic illiteracy, in order to try avoiding it.
Socially, that unavoidable solution does look scary to the less than insightful, though. And, since anyone naive and uncritical enough to support the original inflation in the first place, are definitionally selected to be exactly such less-than-insightfuls……..
Just the opposite, they have a worthy borrower that is going to borrow more than $3 trillion this year alone, the US Treasury. But collectively corporation lately have been borrowing at a rate more than three times the treasury. How do you think the equitiy markets put on so much so called value? Those points can only go up if cash goes into the markets, points are nothing but a way of expressing how much cash the market is worth. I am starting to think that not everyone appreciates how money is created and destroyed. To put it most simply as one of my first econ professors did, money is borrowed into existence and can only be destroyed when it is removed from circulation, buy and hold is one way to remove it from circulation, works as well as setting it on fire or burying in a coffee can in the back yard. It is especially easy to do now that about 99.99999% of all money is electronic bookkeeping entries.
Economic problems are similar to various drug addictions … things “feel real good” to start with but the “feel good” soon demands MORE MORE MORE and eventually the MORE MORE MORE leads to systemic breakdown/collapse … very few people make it past that stage … can only hope the same doesn’t apply to the economy …
who cares the stock market it up up up!!
If it really is, or becomes, true that more and more people now have to be evicted and thrown into the street, in order to fund making it “go up up up” to feed the parasitic classes; even the famously clueless and pliant American indoctrinati may start caring after awhile.
How will this affect the inflation rate?
3rd Quarter the test for CPI re entitlements:
“The purpose of the COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation. It is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year. If there is no increase, there can be no COLA.”
Back to economics again, leave the Trump bashing to the NY Times and the corrupt media. Biden will be a lot worse if he gets in.
“Biden will be a lot worse if he gets in.”
Let me get this straight. Bashing Trump in this space has nothing to do with economics, but bashing Biden does?
oh mish, you’re such a debbie downer. i come here in search of hope and change.
Have you tried OAN ?
Even OAN is saying half the country is doomed :
“Wall To Wall: Stephen Moore Discusses ‘Blue State Lockdown Recession’
OAN Newsroom
Friday, June 26, 2020
Nearly 1.5 million Americans applied for unemployment benefits last week, with data showing blue state unemployment spiking in comparison to red states.”
The gouging if food is clear for all of us who grocery shop. I am sure the corporate owned medical establishment are also not going to let a good crisis go to waste.
It is sad we have developed such a loss of ethics that our society sees every tragedy as an opportunity to get rich exploiting victims.
“But those expecting a big jump in the CPI as calculated will be wrong again.”
…
Yes. I expected as much noting the surge in energy. Strip out energy …
Anyways, June high water mark for fiscal stimulus / moratorium / forbearance … which will (very) likely be high water mark for CPI this cycle.
The delinquency / default issue rising daily. Throw in surging bankruptcy in small business. Deflationary forces just getting started.
Same BLS that reported millions in new employment?
Dow 100 million.
Bullish market continues.
Lol.
But we can trust the the CDC Covid numbers… right?
The most fundamental reason why the CPI won’t jump, is that it will just be rejigged such that any otherwise “jump” is brought right back down.
It’s just a propaganda tool, after all. Not something economically meaningful.
As for most “calculation” of CPI like “measures”, demand destruction only goes so far, unless supply somehow stays up. Which it won’t, with more people out of work, and more efficient processes being replaced by less efficient ones due to the latter being more in tune with increased distancing.
Heck, if the “demand side” ends up being propped up artificially by continuing to pay all those who are no longer working to add to supply, you may very well end up with the net effect being increased scarcity. Which is another way of saying higher prices.