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Inflation increased 0.9% in June

Article

Economists estimated a 0.5% increase, but Fed not worried

Data from the Bureau of Labor Statistics showed that the cost of living increased 0.9% in June compared to last year, which is the largest jump since 2008. The increase exceeded the forecast from some economists, who estimated a 0.5% increase.

While the cost of medical care decreased .4%, the cost of used vehicles increased a record 10.5% in June, following jumps of 7.3% in May and 10% in April. Used vehicle costs accounted for more than one-third of the increase in overall consumer prices. This price increase isn’t expected to last long, as automakers are producing more new vehicles, which will eventually return the market for used vehicles to normal. The used car market relies heavily on trade-ins and spare parts, and has struggled with the global microchip shortage and supply chain backlogs.

These backlogs are hitting almost every industry, and businesses can’t get enough supplies or labor to keep up with demand, resulting in higher prices, which in turn get passed on to consumers.

Another big contributor to overall inflation is the cost of gasoline, which rose 2.5% last month and are up 45% in the past year.

Much of the increase in consumer prices in June happened in sectors where prices fell sharply in the early stages of COVID-19, such as airfares, hotels, and restaurants. In addition, pent up demand, fueled by high pandemic savings rates, have created high demand not just for travel-related goods, but for items like furniture and bicycles.

For the last 12 months ending in June, the cost of medical care has decreased 2.2%.

The Federal Reserve Bank expects these price increases to be temporary once the labor market and supply chains catch up, referring to the increases as “transitory.” The central bank predicts inflation will drop to 2% by 2022, though minutes from the most recent meeting showed that officials there were caught off guard by the size of the recent increase.

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