July 14, 2021 | 09:00
U.S. Produces More Inflation
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Fed Chair Powell's remarks, which he will make at noon today to Congress, acknowledged the latest "notable" run-up in inflation and his view that it will "likely remain elevated in coming months before moderating." But his comments suggest that he is taking all of this in stride, citing temporary factors such as base effects and bottlenecks, and demand for services as the economy reopened.
But here's the clincher: "... reaching the standard of "substantial further progress" is still a ways off".
Interesting. The RBNZ also warned of "near-term spikes" in CPI and cited one-offs or temporary factors. But that central bank is ending QE in nine days.
So the transitory debate rages on. The June U.S. CPI data heated up the discussion, while the June PPI did nothing to cool it down. U.S. producer prices jumped 1.0% in June, the largest since January, and the second largest since this particular version began in late 2009. The increase was spread out between goods (+1.2%), services (+0.8%), and construction (+0.7%). Excluding food & energy, the 1.0% gain (0.97%) was also the biggest since the series began (over a decade). And from a year ago: headline +7.3%, core +5.6%.
Excluding food & energy and trade services, the 0.5% gain was a little slower than the prior two months but the 5.5% y/y rate is still terribly high.
Bottom Line: Gosh, I'd hate to see what the data would look like to cause policymakers to say "Wow! This is so NOT transitory!" But the Fed expects progress to continue, and that the discussions will continue "in coming meetings". More officials are leaning to the side of an earlier tapering and the June inflation data will give them extra time at the podium to argue that point.