June consumer prices rose sharply again as the economy rebounded

The index measures what consumers pay for goods and services, including clothing, groceries, restaurant meals, recreation and vehicles. Economists also believe it was up 0.5% seasonally adjusted in June from May.

Consumers are seeing prices rise for many reasons as the US economic recovery accelerates. Richard F. Moody, chief economist at Regions Financial Corp., said the main driver of inflation in June was booming demand that was outstripping companies’ ability to keep pace. Another factor, he said, was the rebound in prices for air travel, hotels, rental cars, entertainment and recreation – all services hit hard by the Covid-19 pandemic.

“Demand is coming back very quickly and companies are normalizing prices in the sense that they are compensating for the drops” earlier in the pandemic, he said.

Supply shortages and higher shipping costs also continue to drive commodity inflation rapidly. The prices of goods, excluding food and energy, saw the two largest monthly increases on record in April and May, Moody said.

The price hike reflects strong consumer demand spurred by widespread immunizations, the end of many trade restrictions, trillions of dollars in federal pandemic assistance and significant household savings. Higher demand has also prompted employers to seek more workers and pay higher wages as they find it difficult to hire.

The gross domestic product of the United States grew 6.4% at a seasonally adjusted annual rate in the first quarter. Economists polled by the Journal in July expect the Commerce Department to report that the economy grew at an annual rate of 9.1% in the second quarter, on course to have the best GDP year since the start. from the 1980s.

Annual measures of inflation are amplified by comparisons to figures from last year during Covid-19 lockdowns, when prices fell due to collapsing demand for many goods and services. This so-called base effect is expected to push inflation numbers up in June, before weakening in the fall.

Compared to two years ago, overall prices rose 2.5% more moderately in May. However, overall prices jumped at an annualized rate of 9.7% in the three months ended in May.

More and more companies are passing on higher labor and material costs to consumers. Many are also raising prices for the first time in years, as demand increases following trade restrictions linked to the pandemic.

Ryan L. Sumner and Michelle Fox of Fenix ​​Fotography LLC in Charlotte have been operating at full capacity for several months, doing portrait photography for people looking for new jobs, working remotely and starting new businesses. Mr Sumner said they had increased prices by around 20% in February and nearly 17% last week, the first price increases in about 15 years.

The first raise did not shake their business – nor did it alleviate the burnout the couple were experiencing due to relentless demand. They are interviewing to add a second photographer. “One of the things we’re looking at is limiting uptime… because that’s been a lot to deal with for a small business. Where we are at, we need to either increase prices or add staff, or both, ”Sumner said.

Policymakers are watching the June reading to gauge the magnitude of what many expect to be several months of robust inflation after a year of anemic price pressures at the height of the pandemic. Whether the surge in inflation is temporary is a key question for the U.S. economy and financial markets, as well as the Federal Reserve’s easy money policies aimed at helping the economy weather the pandemic. .

The Fed, in a report released on Friday, reiterated its view that inflation has risen due to bottlenecks, hiring difficulties and other “largely transient factors” linked to the rebound in the economy. economy after the pandemic. Most officials, in projections released last month, believe inflation will drop to around 2% over the next two years. Nonetheless, a sustained and significant rise in inflation could force the Fed to tighten policies sooner than expected – or react more aggressively later – to meet its average inflation target of 2%.

Many economists now expect the rise in inflation to hold steady while slowly easing. People polled by the Journal in July on average estimate that annual inflation, as measured by the CPI, will decline to 4.1% in December. Annual inflation for 2019, before the pandemic began in March 2020, was 1.8% on average.

Some 48% of small businesses said they increased their average selling prices in May, the highest share since 1981, according to a survey by the National Federation of Independent Businesses, a trade association.

Many consumers are willing to pay higher prices than they normally should after spending more than a year locked in their homes, said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

“Right now what you have, especially among people who haven’t lost their jobs and been able to go on vacation, is ‘My tolerance is a bit higher right now'”, a- she declared.

Jay Bodenstein, 73, of The Villages, Florida, is aware of rising prices for food, rent, gasoline, car insurance, health care and travel. He said he and his wife, Sandy, are going out to dinner less in part because of the higher prices and because they are increasingly worried about the Delta variant of the coronavirus.

The couple encountered significantly higher food prices at the local cinema while attending the movie “Cruella”.

“A hot dog at the movies cost $ 7,” he said, adding that before the pandemic he paid around $ 4. Mr. Bodenstein chose to pass on the hot dog and other concession food. “All the prices have exploded,” he said. “You just say, ‘Forget it’. “

Write to Gwynn Guilford at [email protected]