In the US, the headline CPI increased by 0.9% on a monthly basis (the highest since June 2008) and 5.4% on a year-on-year basis (the highest since August 2008) in June. On the core inflation side, which excludes volatile items such as food and energy, monthly and annual increases of 0.9% and 4.5% (the highest since November 1991) are observed, respectively. Market expectations were 0.5% and 4.9% monthly and yearly in the headline CPI, and 0.4% and 4% in the core CPI. The monthly rate of increase of 0.6% in May had carried annual inflation to the 5% band. Annual inflation, on the other hand, has been on the rise since January with 1.4% inflation.
When we look at the sub-items; The used cars and trucks index continued to rise sharply in June, up 10.5%. This increase accounted for approximately one-third of the increase in all seasonally adjusted items. The food index rose 0.8% in June, a larger increase than the reported 0.4% increase for May. In June, the energy index increased by 1.5 percent and the gasoline index increased by 2.5 percent compared to the month. In annual changes, energy inflation is 24.5% and food inflation is 2.4%. Core inflation, which excludes food and energy, increased by 0.9% in June after increasing 0.7% in May. Most indices continued to rise, including used cars and trucks, new vehicles, airline fares and clothing. The medical care index and the household goods and operations index were among the few key component indices that fell in June.
It is a fact that the upward movement of inflation at previously projected levels is still alive. Fear is that we will see these high inflation rates for a while. For the Fed, the impact on yields may be limited at first, as the movement in many items will still be considered “temporary”. Although the long-term side of inflation is still in line with the Fed’s projections, higher inflation rates than expected in the short term and the need to create a slightly reduced inflation by controlling the factors that feed it may bring the Fed’s policy adjustment to more necessary points. At the very least, hawkish thinkers within the Fed will base their arguments on the overheated demand effect created by loose financial conditions, a prime indicator of which is credit growth. It is a fact that inflation is also a problem in terms of real wages and that the USA has to face. Because both the negativity in real returns has deepened, and it is seen that real earnings contracted by 0.9% in June. As a result, the demand brought by low rates may increase the prices of houses and cars, but when individuals lose their ability to spend, there will be no room for these price increases to occur and will cause prices to fall rapidly (a familiar scenario). Against the effect of extra inflation, the Fed has the option to evaluate policy instruments.
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