Truflation: June CPI Insights

Based on Truflation, we continue to have high inflation rates in June. We expect inflation to remain high for the duration of 2022 and start to ‘appear’ to come down only because prices were so high in 2021 that they will skew the YoY% change. In reality, inflation is at all-time highs in most categories, so let’s dive into the numbers and our insights for June:

As of June 9th, 2022, Inflation in the US is 10.6%, as measured by Truflation’s Dashboard, and is holding stable versus our May 9th rate, which was 10.6%. Although the YoY % change remained lower due to the base effect, the underlying price index increased between May and June by 1.7 points (from 142.4 to 144.1, benchmarked to 100 in 2010). The price index increases were higher in April and May 2022 than almost any other months in 2021 and 2022.

The rate of inflation continues to be driven by the three largest household expenditure categories, which account for just under ⅔ of household expenditure:

• Housing – 12.9%, where actual prices of both rented and owned are at all-time highs for the last four months; we see no moderation in prices or demand in our data for June.

• Transportation – 19.6%, where the actual prices of new cars and petrol prices are at all-time highs, we only see a moderation in used car prices coming down slowly over the past two months.

• Food – 10.1%, has been gradually coming down since mid-April but is still higher than in May. This category is being driven by raw food material prices being at all-time highs and worries about global wheat production this year, pushing up future price expectations.

In our data, the cost of transportation and gasoline is a good indicator of future inflation trends, given the US dependency on roads. Whether you are using shipping trucking or air freight to market your products, they all require fuel to get you there, and everyone globally competes for limited oil and LPG supplies.

Despite the US government utilizing the strategic petroleum reserves, there has been no change in the trajectory of gas prices at the pump, which continues each day to reach new heights for US consumers. A full tank of petrol (based on an average tank of 14 gallons) is now breaking US$70. The problems with crude oil and energy supplies are driving up prices for consumers at the pump and at home in terms of the cost of utilities. Even with the arrival of summer and less demand, the energy market mayhem continues.

Faced with rising prices for food, transport, and energy, it is inevitable that consumers will tighten their belts. People will not be able to afford to buy what they have before, which will affect consumer retail spending and demand for goods and services. Wage increases will not offset their loss of purchasing power from rising inflation. The expected US interest rate increase of 0.5% this month and 0.5% next month in July should dampen consumer spending further as credit becomes more expensive for everyone.

Is the inventory cycle (thanks to COVID) returning to haunt us? The simple answer may be yes. We have all gotten used to just-in-time inventory management by large companies (think Target, Amazon, and Walmart). The pandemic has upended that ‘always more available’ model, and the ongoing global supply issues will not disappear overnight. US retailers will struggle to offload bloated inventory levels, even with discounts, to shoppers who feel less wealthy. It will impact corporate earnings as inventory costs mount.

All is not lost. Within the data, there are positive signs of supply-side improvements on the horizon:

• Semiconductor prices are down 14% from last year, impacting electronics, household durables, medical devices, and LED lighting, which should help ease shortages of these items that resulted from manufacturing shutdowns during COVID.
• Spot Rate for shipping containers has come down from its all-time high in September 2021. Global shipping prices may come back down to earth.
• North American fertilizer prices have come down by 24% from their record high in March this year. You can thank Russia’s war in Ukraine for that spring price spike.

Together the above items do not necessarily mean that prices will come down for consumers or that the supply bottlenecks are easing straight away. Still, they are indicators of a future where supply and demand are finding their way back into balance after exceptional imbalances.

This might lead to the moderation of supply-side pressures in the US economy and allow for slowing the tightening measures promised by the Federal Reserve this year. No one is holding their breath here at Truflation yet.

We cannot control the wind, but we can adjust our sails. By having better data, we can see where we are heading before we get there and adjust accordingly.

Written by CeAnn Simpson

About Truflation

At Truflation this week, we have launched an entirely new website and a dashboard that offers more insights and highly detailed daily inflation charts using real-market price data.

Our mission is to offer the most objective, decentralized, and current economic and financial information alternative in the form of on-chain price indexes to enable a new generation of blockchain products. We help developers create tools that help people maintain their purchasing power, navigate their portfolios through a challenging macroeconomic landscape, and propel the DeFi space into the new era of an inflation-proof and blockchain-powered economy.