EconoFACTS

July 13, 2022 | 09:08

U.S. CPI Just Keeps on Peaking

Economist

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Sal Guatieri

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Another month, another high-side surprise for U.S. inflation. The Fed won't be pleased.

Consumer prices jumped 1.3% in June, surpassing even our above-consensus call (1.2%). This was the largest monthly increase since 2005, and it spiked the yearly rate to 9.1%, the highest since 1981. Soaring energy costs (including record gasoline prices) contributed to about half of the monthly rise. Food was up another 1.0% (and 10.4% y/y) and almost every other major component is flashing heat, including one of the few laggards, clothing. And used vehicle prices are motoring higher once again, along with new cars. Medical care costs piled on with an unhealthy 0.7% spike. Most alarming (though not surprising given sky-rocketing house prices), rents are on fire, with tenant rates up 0.8% (the most since 1986) and the imputed rate up 0.7% (the most since 1990). The only material (and surprising) relief came from a pullback in airfares and hotel rates, despite surging travel and fuel costs. The net result is that core prices leaped 0.7% (a tenth more than expected), breaking out to the high side of the mostly 0.5%-to-0.6% range prevailing since last fall. While the yearly core rate edged down to 5.9%, it will be reversing higher in the next three months as the year-ago comparisons get much tougher (in the 0.2%-to-0.3% range).

Bottom Line: Rather than cooling down, inflation is heating up. While a pullback in gasoline costs in July and reported retail discounting will help tamp down the flames, the broad pressure in the core rate, led by plenty of inertia in rents, suggests inflation may not peak for a while, and might remain stubbornly high for longer than anticipated. The odds of a larger-than-75-bp Fed rate hike on July 27 just went up materially, sending Treasury markets tumbling and the yield curve inverting further.

Table 1 - United States — CPI

(month/month % change : s.a.)

Source: BMO Economics, Haver Analytics