Consumer prices jumped in June
SACHA PFEIFFER, HTE:
The cost of living keeps increasing. The Labor Department said this morning that consumer prices in June were 5.4% higher than a year ago. It’s the highest annual inflation rate since 2008. And over the past year, prices have jumped almost a percentage point in just one month from May to June. The spike comes as the economy recovers from the pandemic recession, but some of the main contributors to recent price spikes may ease. Scott Horsley from NPR is joining us now. Hi, Scott.
SCOTT HORSLEY, BYLINE: Hello.
PFEIFFER: And Scott, I think a lot of people went through this shock of stickers from all kinds of consumer items. I recently heard someone say he paid $ 98 for a piece of plywood. So what is it – why are we seeing this price increase?
HORSLEY: Yeah, that’s a lot of demand and not enough supply. As we emerge from our pandemic cocoons, consumers are spending freely and many companies are struggling to keep up. It is a recipe for higher prices. We are seeing higher prices for gasoline, for transportation, for food. One thing that jumps out in today’s report is the price of used cars and trucks. This has been a big driver of inflation for several months now. And it’s really a by-product of the lack of new cars on the market.
We’ve talked a lot about the semiconductor shortage hitting automakers this year. Economist Jonathan Smoke, who works at Cox Automotive, says automakers also had to deal with this deep freeze in Texas during the winter that reduced plastic production, as well as recent flooding in Michigan.
JONATHAN SMOKE: It was just a series of perfect storms that kept production of new vehicles from returning to normal. And while this supply has been contested, we have had increasing demand.
HORSLEY: Prices for used cars and trucks jumped 10 1/2% between May and June, which was more than a third of headline inflation last month.
PFEIFFER: I understand that you’ve found that, at least when it comes to used cars and trucks, prices can peak.
HORSLEY: That’s right. Smoke monitors the used car wholesale market. This is where many dealerships buy the vehicles which then appear on their lots. And those prices peaked about four weeks ago, and they’ve been going down since. Assuming the retail market follows suit, we should see used car and truck prices drop in the second half of this year, which would help reverse some of the inflationary pressures. Smoke says you can already see less frantic buying at wholesale auto auctions, and there are now more cars to choose from from used car lots across the country.
SMOKE: It’s not that demand has completely cratered. It’s just that we are past what has been such a wild spring.
HORSLEY: And that’s the kind of correction the Federal Reserve relies on when it says it expects the inflation jump to be temporary. The central bank argues that many of these supply bottlenecks will eventually be resolved, demand will cool down a bit, and this era of high inflation will slip into the rearview mirror.
PFEIFFER: A lot of people are wondering if the Fed will end up raising interest rates, which would be good for people with savings accounts, but make loans and mortgages more expensive. So what do you expect from the Fed in relation to inflation? What is the broader outlook for inflation?
HORSLEY: Well, for now, the Fed is keeping their powder dry and hoping they can get away with it. The Fed’s long-term inflation target is 2%. We’re obviously way above that right now, but we’ve been way below 2% for a long time. We are now going to experience a period of higher inflation, but the Fed and Capitol Hill forecasters believe that we will likely see lower inflation next year, that this is not the start of a spiral. to the sustainable rise in prices as we have seen. in the 1970s. If that turns out to be wrong, however, rate hikes would be the Federal Reserve’s toolkit for dealing with higher inflation.
PFEIFFER: It’s Scott Horsley from NPR. Scott, thank you.
HORSLEY You’re welcome.
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