US inflation continued to rise last month, thanks in part to the largest monthly increase in used car prices in more than 60 years.
The American consumer price index (CPI) rose 5.4% year over year in June, a level last seen in 2008, when the economy continued to recover from the coronavirus crisis and some supply chains struggled to keep up .
Inflation in the world’s largest economy had already risen to 5% in May, and the unexpectedly strong recent reading adds to the potential headache for the US Federal Reserve, which is targeting a 2% interest rate.
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Jerome Powell is due to testify to U.S. lawmakers this week
The latest figures show that the index for used cars and trucks rose 10.5% between May and June alone, the largest increase since it was first published in 1953.
This meant that used cars changed hands an average of 45% more in the last month than a year earlier.
The CPI numbers pushed the US dollar higher and gave Wall Street stocks a break – with the Dow Jones taking despite hopes that the Start of the winning season this week will deliver a bumper crop of quarterly earnings.
The markets are gripped by the possibility that the Fed could have to hike ultra-low interest rates earlier than expected, a prospect that could both dampen domestic growth and instill fear among global borrowers.
The Fed, whose chairman Jerome Powell is due to testify to US lawmakers for two days this week, has claimed the rise in inflation is temporary – a temporary consequence of the recovery from last year’s recession.
Recent figures released by the Bureau of Labor Statistics showed that an increase in fuel prices – after oil previously plummeted during the pandemic – was a large part of the ongoing surge in inflation.
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The numbers reflect the reopening of the US economy
But they also showed that even without the volatile food and energy prices, inflation reached 4.5%, its highest level since 1991.
The unprecedented surge in used cars and trucks made up a large part of headline inflation, and came after a shortage of semiconductor chips slowed the supply of new cars.
New car prices rose by 2% compared to the previous month – the largest increase since 1981 -, hotels and restaurants also increased their prices.
The rise in inflation is attributed to the scarcity of raw materials such as semiconductors and lumber, as well as increasing demand from consumers who increasingly travel, shop and dine out, combined with the shortage of workers to serve them, leading to wages in the Height drives.
However, officials in Washington expect the price spikes to subside as the supply bottlenecks ease and the economy normalizes again.
In any event, the Fed is aiming for inflation to stay above its 2% target for some time to offset below that level for much of the past decade.
Inflation has too Picked up in the UKAlso due, albeit to a lesser extent, to factors that officials believe will prove temporary.
