US: Headline CPI surged to 13-year highs in June – UOB

Senior Economist at UOB Group Alvin Liew reviews the latest US inflation data.

Key Quotes

“On Tue (13 Jul), the June CPI data released by US Labor Department showed US price inflation topped forecasts for the second straight month and by a wide margin with the y/y increase at the highest since 2008.”

“US CPI rose 0.9% m/m in Jun, the largest one-month increase since Jun 2008 (1.0%) and well exceeding Bloomberg median forecast of 0.5%, and up from a 0.6% increase in the prior month. Core CPI surged a similar 0.9% m/m, also beating expectations of 0.5%. Compared to 12 months ago, Jun CPI inflation was higher at 5.4% y/y (from 5% in May), the highest inflation rate since Aug 2008 (5.3% y/y) while core inflation soared to 4.5% y/y, the largest increase since Sep 1991 (4.6%).”

“In addition, the price increases came amid low base from last year as well as supply constraints and a continued rebound in the costs of travelrelated services from pandemic-depressed levels as the economic recovery gathered momentum. Indeed, the better containment of the COVID-19 pandemic and the accelerated vaccinated rollout saw the US economy re-opening further and more Americans returning to the workplace, helping to drive the costs of CPI items especially used vehicles & rental vehicles, airfares and apparel. The lingering global chip shortage issue has continued to affect US car production in recent months, which in turn contributed to higher demand and prices for used vehicles as a temporary fix for workers returning to the workplace.”

“US headline CPI inflation will remain elevated as we enter the second half of 2021. Transportand energy-related components that have been mainly responsible for the higher than expected inflation readings in 2Q, will likely to continue to exert upside price pressure for US inflation into 3Q, compared to the one year ago period, when much of the economic activity was starting to open up from the pandemic and its social distancing and other precaution measures in place to control COVID-19.”