U.S. consumer prices rose for the third-consecutive month in June. Last month’s price increases brought the CPI’s growth from a year earlier to 2.9%, the highest monthly uptick in the last 4 years.
Why did this happen? Well, CPI gains can be attributed to many factors: strong economic growth, tightening labor markets, rising input costs due to tariffs, etc.
But out of all these reasons, the main cause of our recent growth is most likely due to rising prices of consumer goods, especially that of oil. Oil prices, which are very closely related to gasoline prices, have been rising due to falling supply from OPEC members. In July, President Trump even asked the de facto leader of OPEC, Saudi Arabia, to increase its output, as low inventory put a toll on the pockets of U.S. consumers.
Last month, gasoline prices rose 0.5 percent after increasing 1.7 percent in May. From last year, gas prices have risen 24%. In addition to gasoline prices, food prices gained 0.2 percent, healthcare costs rose 0.4 percent, and hospital services added 0.8 percent. Due to rising input costs caused by steel and aluminum tariffs, prices for new motor vehicles rose for the second straight month.
With higher prices for goods, it is inevitable that the amount of money Americans spend rises. So far, due to the robust economy and labor market, Americans have been able to sustain the rising prices. But with this trend of increasing inflation, it might get harder and harder.
Average hourly earnings rose 2.7% on a year-over-year basis in June. Despite this increase, “real earnings” were actually down by 0.2%. In other words, one’s pay “raise” hasn’t exactly worked out to be a raise. If this trend continues, consumer spending and confidence will decrease due to consumers’ loss of purchasing power.
So what do we need to look out for now? Rising interest rates, as well as trade tensions and uncertainties will be the keys going forward. The Fed has already raised interest rates twice so far this year and is likely planning two more increases by December.
What’s more, the Fed originally assumed the tariffs were too small to affect inflation. Now, with the newly announced U.S. tariff of 10% on $200 billion worth of imports from China, that could change.
After a long period with a strong economy and extremely low unemployment rate, it seems as if strong marks of inflation are finally looming upon us.
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