Consumer Prices Surge Most Since 2005 (Not 1982)

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.

UPDATE: 7/16/08  3:51pm

Not-so-tiny correction: The rise in the CPI was not the worst since 1982; it’s actually the worst since 2005. The BLS gave reporters inaccurate historical comparisons, but they have since corrected them. They stand by the actual numbers!)


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

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.




Charts via Jake


Consumer Price Index Summary:  JUNE 2008
BLS, July 16, 2008


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What's been said:

Discussions found on the web:
  1. liz tool commented on Jul 16

    Not long ago my boss all excited tells me the good news that the company is now going to pay for part time workers vacation. Being the cynical wretch that I am I rolled my eyes and laughed because I KNOW there must be a catch. To which my boss admonished me for being so sarcastic….a week later I get an e-mail from my company and indeed they are going to start paying for vacations but it is the end of paid holidays!! Since I only work 3 days a week and used to get paid for 7 holidays….hmm…and the new people have to wait a year before they can start accumulating vacation.

    This is the kind of stuff that is silently and slowly eating away at the incomes of most workers.I doubt it ends up on a chart that you can look at.

  2. Donkei commented on Jul 16

    OT: Isn’t it about time that Meredith, the both ways hot banking analyst, analysed Wells?

    I saw their numbers. How does it happen that everyone else standing in the rain is getting wet, but Wells claims to be staying dry? Are they the Goldman Sachs of commercial banking, or are they just good at accounting?

  3. RENEWind commented on Jul 16

    Jim Haygood – you got it! And the next bubble is already identified as alternative energy!

  4. roger commented on Jul 16

    What do you know. The Bush administration agrees reluctantly to meet directly with Iran in negotiations about nuclear power, and oil starts to drop. Almost like the run up is due to the entirely insanely aggressive Bush policy in the Middle East. But that can’t be – after all, we were pushin’ for freedom! I’m sure that future investors understood that.

    Watch as the Bush people reverse oil’s downward track by pushing some other bit of aggressive nonsense in the Gulf region. My guess: the Washington Post and NYT publicizing some standard rhetorical claptrap from Iran’s president, of the type that is common, as well, in Saudi Arabia (but of course never publicized). Has to happen. Almost like Bush’s buddies make money when the price of oil rises.

  5. Rex commented on Jul 16

    Barry: Tiny correction: The rise in the CPI was not the worst since 1982; it’s actually the worst since 2005. (The BLS gave reporters some inaccurate historical comparisons, but has since corrected them. They stand by the actual numbers!!)

  6. GuinnessFan commented on Jul 16

    We hear a lot about the government methodology understating CPI, but the Owner’s Equivalent Rent estimate that now says we have housing inflation seems to run inverse to reality and confuses me a bit (easy to do).

    When home prices were rising parabolically in some areas Owner’s Equivalent Rent was giving a false impression that housing inflation was low. Now with a financial debacle in progress that was triggered by falling home prices ORE is saying we have housing inflation. Given that housing costs are the largest single factor in most household budgets it seems that we aren’t getting a very good estimate of this component.

    I’m sure Bernanke has made his share of mistakes, but I actually have some empathy for the guy. The Fed is being asked to do all things financial these days because there’s no leadership from either the executive or congressional branches of our government. I’m surprised Bernanke hasn’t been asked to cure cancer and win the war on terror. There’s no way the Fed can accomplish all that’s being asked of it.

    I’m still trying to maintain some optimism that inflation will abate. Won’t the contraction in credit availability due to tightened (a.k.a prudent) lending standards perform the same function as a Fed Funds rate increase?

    My optimism may be misplaced (which happens a lot). Perhaps the “Guns and Butter” policies that we’ve been promoting (wasn’t there another President from
    Texas who tried this?) will lead to a 70’s style stagflation-lite. However, rather than a Volker like attack with Fed Funds rate, why not target the main culprit in the inflation problem – energy. A gasoline tax increase would be more efferctive in crushing petroleum demand than would a general rise in interest rates. Do we really need to tank the whole economy to deal with this? Alas, I realize that even if this were the prudent thing to do it would never happen.

    Now, back to my regularly scheduled Guinness.

  7. leftback commented on Jul 16

    Nasty nasty numbers… this will renew calls for a hike from the FED dissenters.

    I think we can expect to see the Bear Steepener in full force. Get long the 2-year and short the long bond. Easy money.

  8. VJ commented on Jul 16

    I noticed the very same meme:

    BERNARD BAUMOHL, DIRECTOR, ECONOMIC OUTLOOK GROUP: Every once in a while we all make statements that seem outlandish to others. But when we hear it from the Federal Reserve, well, then you have to ask, what were they thinking? We know that inflation is public enemy number one at the Fed, as it should be. But then several officials there suddenly began to sprinkle their speeches with warnings that a wage and price spiral may fire up inflation, and that struck me as bizarre. The Fed’s argument goes something like this: To offset higher price food and energy prices, workers will demand more pay, and that would force companies, who want to protect their profit margins, to raise prices on consumers. The fear is this could trigger a vicious circle between employees and employers. True, wage and price spirals have caused inflation to flare up in the past. But higher wages will not inexorably result in more inflation, and certainly not in this economy. First of all, let’s give American workers a break. While food prices have jumped 5 percent and gasoline 40 percent over the past year, average weekly pay has edged up a miserly 2.8 percent. In fact, wage increases have fallen behind inflation in each of the last nine months, shrinking the purchasing power of workers to their lowest in two years. Ironically, this has happened as labor productivity jumped by its fastest pace since 2004. Rising productivity permits companies to lift wages without hurting earnings. For these reasons I think Fed warnings that higher wages can fuel inflationary pressures are misplaced and premature.



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