Consumer Prices Surge Most Since ’82

U.S. consumer prices soared in June. The stagflationary mix of rising unemployment,
strained financial markets and rising inflation, painting the Federal Reserve
into a box.

Consumer Price Index surged 1.1% in June, almost twice the rate in May, and far above the consensus expectations of Wall Street economists, who were looking for a 0.7% rise. It was the biggest monthly gain in the inflation indicator since June 1982.  Year over year, the price index has risen 5%, the biggest 12 month jump since May 1991.

Medical care prices, meanwhile, increased a modest 0.2%, while clothing prices rose just 0.1%. These were the only
bright spots, as other components posted sharp
gains:

Transportation prices rose 3.8%
Airline fares
swelled 4.5%
Energy prices jumped 6.6%
Gasoline prices spiked 10.1%
Natural gas prices rose 4.9%.
Food and beverage prices rose 0.7%
Commodity prices soared 1.9%  (a record monthly high).

(Charts below)

The core rate increased 2.4% from June 2007, also
far more than consensus expectations.

Adding insult to injury, the Labor Department noted that "average weekly earnings of U.S. workers,
adjusted for inflation, fell 0.9% in June
." This means that the typical American household income is failing to keep up with rising prices.

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Cpijune2

Cpi3

Charts via Jake

>

Source:
Consumer Price Index Summary:  JUNE 2008
BLS, July 16, 2008
http://www.bls.gov/news.release/cpi.nr0.htm

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What's been said:

Discussions found on the web:
  1. Chief Tomahawk commented on Jul 16

    How long before Dick & Jane begin robbing banks?

  2. VennData commented on Jul 16

    I have complete faith in the Plunge Prolongation Team put together by our revered Commander-in-Chief and Karl Rove… Hallelujah.

  3. rj commented on Jul 16

    If we look at this from a purely political perspective, the “wages are falling 0.9% after adjusting for inflation” is very big.

    I don’t think the Fed has much wiggle room now if it wants to be in the country’s good graces: it’ll have to raise interest rates.

  4. Christopher commented on Jul 16

    Barry, obviously that release was a mistake. Someone accidently put out the real CPI figures. Next month the Commerce Dept will issue an adjusted figure that will show no inflation.

    It can get confusing keeping two sets of books!

  5. Pool Shark commented on Jul 16

    “How long before Dick & Jane begin robbing banks?”

    Not to worry Chief;

    by the time depositors have made their runs, there won’t be any cash left in the banks.

  6. Peter B commented on Jul 16

    June CPI rose a higher than expected 1.1%, .4% more than the forecast the core rose .3%, .1% greater than the consensus. Y/o/Y gain in headline CPI is now 5%, the highest since May 1991. Core CPI y/o/y is up 2.4%, the most since March. Owners Equivalent Rent (24% of CPI) rose .3%, the most since Jan and actual rents rose .7% after rising 1.3% in May and helped to lift the core #. With more and more people renting instead of buying, this trend is worth watching. Energy prices rose 6.6% m/o/m and food rose .8%. Keeping a cap on the core # was another modest gain of .2% in medical care. Vehicle prices rose .1% as car price increases offset a decline in truck prices. Bottom line with respect to the Fed, the banking system and credit markets are their main focus and the inflation issue, notwithstanding comments to the contrary, will take a back seat.

  7. Jeff commented on Jul 16

    Here comes the market rally. Will it last? I say no, sell into any significant strength.

  8. Petro commented on Jul 16

    By my calculations I’m getting a 13.43% annualized increase. Is that right, or did I mess up my math?

  9. HCF commented on Jul 16

    So the market seems to be rallying on “good news” from WFC (Yay! Profits down ONLY 22%, so we’ll raise our dividend 3 cents). Anyone else think that this optimism might get taken down a little later in the week when Merrill and Citi open their traps?

    – HCF

  10. Richard commented on Jul 16

    1982, the fed funds rate that year topped out at 14.9 percent; the year before it hit 19.1 percent.

    1982 was the second year of the feds campaign to reduce inflation. That time around it took four years, an unemployment rate of 11 percent and over 11 million people out of work to bring down prices.

    Cheap money always leads to inflation, and speculative bubbles, sound familiar? Inflation is like cancer, by the time you detect it it’s too late, and the treatment will stop it but makes you even more ill.

    Ben wanted to prop up equity markets, and bail everyone out…while Rome burned.

  11. Jim Haygood commented on Jul 16

    Since early last year, my estimate of cost-of-living inflation has been 5-6%. Today, the government’s CPI finally caught up, rising 5.0% y-o-y.

    But bearing in mind the hedonic and substitution adjustments which tend to trim about 1% off the CPI, the “real number” that “real people” are seeing is at least 6%. And 6% is pretty high, a “danger zone” number when the Fed Funds rate is only 2%.

    Four percent negative real interest rate — what’s that spell? They’re trying to create another Bubble, even as this one wheezes and fizzles. And believe me, with the usual lag time — two or three years — THEY WILL.

    The key to investment success at decade’s end lies in identifying where Ben B’s “Bubble III” will be concentrated, and buying it with monster leverage. Borrow at 2%, earn 6%, and amp it up with 10 times leverage. Congratulations — you’re a bank!

  12. Francois commented on Jul 16

    Once again, the Fed has made its choice: inflation is the sacrificial lamb; it will destroy the middle class while sparing the wealthy. Lucky them, the Fed has also decided that the financial system ought to stay as is. It is just a matter of giving it, repeated injections of liquidity elixir and hocus pocus! alakazam! He shall revive and walk again.

    As for the 90% of us? It is mind over matter. They don’t mind, and we don’t matter!

  13. cm commented on Jul 16

    Petro: Annualizing changes from a very short period does not make a lot of sense. Price hikes follow a step function, the most notable exception being gas prices, which are essentially “real time”. Most retail prices are not adjusted a penny a day but a few dimes per month(s), so you have to average things out over let’s say a year, or at least 6 months. Substantial hikes in a short period are still relevant, but they can inform you only qualitatively.

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