High inflation skewed by COVID-19 recovery

In June, the consumer price index rose by 5.4% year over year, the largest increase since 2008. However, Federal Reserve Chairman Jerome Powell maintains the higher rate was due to transitory factors such as depressed economic activity in certain sectors last year.

Examining the major categories, energy led the way with a 24.5% increase. Stripping out food and energy, the core CPI rose by 4.5%. Other commodities, which include items such as new and used vehicles, and airline fares, increased by 8.7%.

Looking back at the monthly changes, the inflation rate has picked up over the past several months. Energy, which had large increases earlier in the year, resumed its sharp ascent with a 1.5% surge in June from May, after a -0.1% decline and flat prices in April and May, respectively. Aside from energy and food, other commodities have experienced accelerating price increases.

Delving deeper, used automobile prices rose by 45%. The 10.5% monthly increase drove more than one-third of June's 0.9% rise. Airline fares also soared by a sharp 24.6% vs. a year ago.

While annual wage growth has accelerated over the past three months through May, the latest data available, the sustainability is uncertain. The year-ago period includes the economic effects of COVID-19, making it difficult to judge whether wage pressures will prevail.