CPI Jumps on Energy But Don't Expect That to Last

Mish

The CPI jumped 0.6 percent in June according to the BLS. The jump was energy related.

Following an unprecedented 3 consecutive month decline in core CPI. the BLS reports the CPI jumped 0.6% in June with the core CPI up 0.2%.

Key Points Month-Over Month

  • The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in June on a seasonally adjusted basis after falling 0.1 percent in May. 
  • The gasoline index rose sharply in June after recent declines and accounted for over half of the monthly increase in the seasonally adjusted all items index. 
  • The energy index increased 5.1 percent in June as the gasoline index rose 12.3 percent. 
  • The food index also rose in June, increasing 0.6 percent as the index for food at home continued to rise. 
  • The index for all items less food and energy rose 0.2 percent in June, its first monthly increase since February. 
  • The index for motor vehicle insurance increased sharply in June after recent declines.
  • The indexes for apparel, shelter, and medical care also increased in June, while the indexes for used cars and trucks, recreation, and communication all declined. 

CPI and Core CPI Year-Over-Year

CPI and Core CPI Year-Over-Year For June 2020

Key Points Year-Over Year

  • The all items index increased 0.6 percent for the 12 months ending June; this compares to a 0.1-percent increase for the 12 months ending May.
  • The index for all items less food and energy increased 1.2 percent over the last 12 months. 
  • The food index increased 4.5 percent over the last 12 months, with the index for food at home rising 5.6 percent.
  • Despite increasing in June, the energy index fell 12.6 percent over the last 12 months. 

CPI, Medical CPI, and OER

CPI, Medical CPI, and OER for June 2020

CPI Distortions

Anyone buying their own medical insurance, those in college, and those looking to buy a home, and those in areas with high rent a home will dispute the stated CPI.

The BLS does not directly factor in the price of homes into the CPI. Rather the BLS goes through a ridiculous process in which it asks people how much they would rent their their own house from themselves and uses that number as Owners' Equivalent Rent (OER).

Nor does the BLS factor in soaring equity prices. And that is the primary place inflation has turned up now. 

CPI Jump Won't Last 

Inflationistas will point to the 0.6% rise and once again say "here we go". 

But those expecting a big jump in the CPI as calculated will be wrong again.

Covid accelerated trends toward more work at home, less driving, less eating out, and fewer business meetings in person.

These factors will easily outweigh government stimulus and Fed manipulations.

State Claims Decline But All Unemployment Claims Are on the Rise

All Continued Claims in 2020 July 9

Related Articles

  1. State Claims Decline But All Unemployment Claims Are on the Rise 
  2. Fewer People Pay Their Rent on Time in July
  3. Producer Price Deflationary Trends Cast Doubt On the Recovery
  4. Millennial Renters Abandon Their Plans to Buy a Home
  5. A Surge in Small Business Bankruptcies is Underway

There is nothing inflationary about the above trends. 

Importantly, some 20 million to 30 million people are out of work and will remain out of work, on life support of State Unemployment Insurance plus pandemic assistance.

Demand destruction is massive. It is too great for the CPI, as constructed, to jump on a sustained basis.

Mish

Comments (24)
No. 1-11
Stuki
Stuki

The most fundamental reason why the CPI won't jump, is that it will just be rejigged such that any otherwise "jump" is brought right back down.

It's just a propaganda tool, after all. Not something economically meaningful.

As for most "calculation" of CPI like "measures", demand destruction only goes so far, unless supply somehow stays up. Which it won't, with more people out of work, and more efficient processes being replaced by less efficient ones due to the latter being more in tune with increased distancing.

Heck, if the "demand side" ends up being propped up artificially by continuing to pay all those who are no longer working to add to supply, you may very well end up with the net effect being increased scarcity. Which is another way of saying higher prices.

tokidoki
tokidoki

Same BLS that reported millions in new employment?

Tony Bennett
Tony Bennett

"But those expecting a big jump in the CPI as calculated will be wrong again."

...

Yes. I expected as much noting the surge in energy. Strip out energy ...

Anyways, June high water mark for fiscal stimulus / moratorium / forbearance ... which will (very) likely be high water mark for CPI this cycle.

The delinquency / default issue rising daily. Throw in surging bankruptcy in small business. Deflationary forces just getting started.

anoop
anoop

oh mish, you're such a debbie downer. i come here in search of hope and change.

simb555
simb555

Back to economics again, leave the Trump bashing to the NY Times and the corrupt media. Biden will be a lot worse if he gets in.

Tony Bennett
Tony Bennett

3rd Quarter the test for CPI re entitlements:

"The purpose of the COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation. It is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year. If there is no increase, there can be no COLA."

numike
numike

who cares the stock market it up up up!!

Herkie
Herkie

Mish, in the late sixties through the seventies and into 1980 we had flat economies at best and a lot of periods of unemployment, lay offs, factory closings, off shoring of our manufacturing sector, trade deficits that for that era were considered serious, gas rationing, and the budding wealth inequality that is now so entrenched it threatens our way of life. We also had double digit inflation year after year that was so stubborn it did not even respond to President Ford's genius idea of everyone wearing a WIN (whip inflation now) lapel button. In fact it did not respond till Paul Volker raised the prime rate severaal times to 20%, nearly strangling the economy in the process, but after a couple years did get inflation under control.

I am here to say as much as I respect you and your views on economics and finance I simply cannot agree with the side that claims we are headed for deflation. Note there were a a lot of economic issues back int the stagflation days that you also would have called deflationary, but the only thing the inflation responded to was crushing interest rates that were actually higher than the inflation itself.

Now we have government and Fed policy that simply makes up inflation statistics as a series of plug numbers that they need in order to justify their negative real interest rate policy and support the asset values of the top 10%. That Mish is ALL there is to it now. Neither the Fed nor the federal government care a wet dog fart about anything except that and if the public >90% goes ape and has to be brutally supressed by militarized police so be it. They are printing money like it has never been printed before in human history and even though distribution of that is limited mostly to the top 10% AKA our betters or more realistically our owners, there can still only be one result from all this dollar creation and debasement, inflation, and eventually hyperinflation that will end in an economic collapse unlike anything man has ever seen before.

Magistral
Magistral

CPI is just an advisory data, cant be a sole discretionary or tool for decision making here is link to one of our article on Covid-19: A challenge or an opportunity for Private Equity firms? click on link to read more for our piece of blog https://magistralconsulting.com/covid-19-a-challenge-or-an-opportunity-for-private-equity-firms/

Nickelodeon
Nickelodeon

I don't how food prices experience price decreases long term with the production capacity being pounded....restaurants/eating out is a somewhat different matter in my mind from the food supply itself.

Time will tell obviously.


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