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CPI prints may sound Fed inflation alarms

Consumer Price Index (CPI) prints from the US came out this afternoon and the warning alarms are probably sounding at the Federal Reserve (Fed).

Tuesday, July 13, 2021

Consumer Price Index (CPI) prints from the US came out this afternoon and the warning alarms are probably sounding at the Federal Reserve (Fed). The CPI print of 0.9% for June was very much stronger than expectations of a 0.5% advance. Compared with a year ago when energy prices were falling, we now see energy rising and it has been for months now – the base effects are slowly rolling out of these figures which might be the alarming part. All components saw a monthly increase – used cars and trucks showed a 10.5% monthly increase which really pulled up the overall inflation rate. How much of this is really transient is debatable – if new car numbers can’t be produced due to lack of semiconductor components then it is perhaps no surprise people are paying up for second-hand cars. The bond market however remains unconvinced that this is symptomatic of a new higher inflation era (consistent with the Fed’s view) as yields remain anchored at near-term lows.

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Charles Hepworth

Investment Director
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