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US Inflation Surges

Following Tuesday’s surprisingly large gains in US business prices, there was a question of whether those prices rebounds would feed down to the consumer level. That was answered Wednesday morning with an extraordinarily strong CPI report.

Data released by the Labor Department Wednesday morning showed that CPI rose by 0.6%, both including and excluding food and energy prices. Both were well above expectations and suggest that the rebound in demand and the massive amount of stimulus in the economy is stimulating some inflation pressures.

However, the year/year rates for inflation remain significantly below their pre-COVID levels, so there is plenty of room for stimulus to work. Even when rates return to their earlier level, there is little chance that policy will be immediately impacted by it.

Energy prices rose by 2.5%, with gasoline prices up 5.6% as demand continued to expand, the Bureau of Labor Statistics reported Wednesday. Unadjusted energy prices were up 2.2%, with unadjusted gasoline prices up 4.8%, compared with seasonal adjustment expectations for small declines.

Food prices fell by 0.4% in the month, with food at home prices down 1.1% after two solid gains. Food prices away from home rose by 0.5%, continuing the upward trend.

Within the core, the relatively large owners’ equivalent rent category rose by 0.2% while lodging away from home prices increased by 1.2% and airline fares jumped by 5.4%, reflecting some improvement in demand for travel. Apparel prices rose by 1.1% after a 1.7% rise in the previous month.

Overall CPI prices were up 1.0% from their year ago level, stronger than the 0.6% rate in June but still well below the pre-COVID rate of 1.5% in March. Prices excluding food and energy were up 1.6% year/year, ahead of the 1.2% rate in June. The year/year rate was 2.1% rate in March before the shutdowns.

Earlier on Wednesday, the Mortgage Bankers Association said that mortgage applications surged by 6.8% in the August 7 week, with refinancing applications up 9.1% and new mortgage applications up 2.0%.

The average 30-year mortgage fell to 3.06% from a record low 3.14% in the previous week.


Colin Lambert

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