U.S. consumer prices continued to climb swiftly in June, as the economic recovery gained steam and demand outpaced the supply of labor and materials.
The Labor Department said last month’s consumer-price index increased 5.4% from a year ago, the highest 12-month rate since August 2008. The so-called core price index, which excludes the often-volatile categories of food and energy, rose 4.5% from a year before.
The index measures what consumers pay for goods and services, including clothes, groceries, restaurant meals, recreational activities and vehicles. It increased a seasonally adjusted 0.9% in June from May, the largest one-month change since June 2008. Prices for used cars and trucks leapt 10.5% from the previous month, driving one-third of the rise in the overall index, the department said. The indexes for airline fares and apparel also rose sharply in June.
Consumers are seeing prices rise for numerous reasons, as the U.S. economic recovery picks up. Richard F. Moody, chief economist at Regions Financial Corp., said the main driver of June inflation was booming demand that outpaced the ability of businesses to keep up. Another factor, he said, was the recovery 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 rapidly, and businesses are normalizing prices in the sense that they are making up for declines” earlier in the pandemic, he said.
Supply shortages and higher shipping costs also continue to drive rapid increases in goods inflation. Prices of goods, excluding food and energy, saw the two biggest monthly increases on record in April and May, Mr. Moody said.
Rising prices reflect robust consumer demand boosted by widespread vaccinations, the ending of many business restrictions, trillions of dollars in federal pandemic relief and ample household savings. Stronger demand also has pushed employers to seek more workers and pay higher wages, as they struggle to hire.
The U.S. inflation rate reached a 13-year high recently, triggering a debate about whether the country is entering an inflationary period similar to the 1970s. WSJ’s Jon Hilsenrath looks at what consumers can expect next.
The Wall Street Journal Interactive Edition
U.S. gross domestic product rose 6.4% at a seasonally adjusted annual rate in the first quarter. Economists surveyed by the Journal in July expect the Commerce Department to report that the economy grew at a 9.1% annual rate in the second quarter—poised for the GDP’s best year since the early 1980s.
Annual inflation measurements are being amplified by comparisons with figures from last year during Covid-19 lockdowns, when prices plummeted because of collapsing demand for many goods and services. This so-called base effect is expected to push up inflation readings in June, dwindling into the fall.
Compared with two years ago, overall prices rose 3% in June. Overall prices jumped at a 10.7% annualized rate in the three months ended in June, faster than the 9.7% pace in May.
More companies are passing on higher labor and materials costs to consumers. Many also are raising prices for the first time in years, as demand surges following pandemic-related business restrictions.
Ryan L. Sumner and Michelle Fox of Fenix Fotography LLC in Charlotte have been operating at maximum capacity for several months shooting photographic portraits for people looking for new jobs, working remotely and starting new businesses. Mr. Sumner said they raised prices in February by about 20% and last week by nearly 17%—the first price increases in about 15 years.
The first increase didn’t put a dent in their business—or alleviate burnout that the couple was experiencing because of unrelenting demand. They are interviewing to add a second photographer. “One of the things we’re looking at is limiting availability…because it’s been a lot for a small firm to handle. Where we’re at is, we either have to raise prices or add staff—or both,” Mr. Sumner said.
Policy makers are watching June’s reading to gauge the magnitude of what many expect to be several months of robust inflation after a year of anemic price pressures during the peak of the pandemic. Whether the inflation surge is temporary is a key question for the U.S. economy and financial markets—and the Federal Reserve’s easy-money policies aimed at helping the economy through the pandemic.
The Fed, in a report released Friday, reiterated its view that inflation has risen because of bottlenecks, hiring difficulties and other “largely transitory factors” related to the economy’s rebound from the pandemic. Most officials, in projections released last month, believe inflation will decline to around 2% over the next two years. Still, a sustained, large increase in inflation could compel the Fed to tighten its policies earlier than planned—or to react more aggressively later—to achieve its 2% average inflation goal.
Many economists now expect higher inflation to stick around while slowly easing. Those surveyed by the Journal in July estimate on average that annual inflation, measured by the CPI, will ease to 4.1% in December. Annual inflation for 2019—ahead of the pandemic’s start in March 2020—was 1.8%, on average.
Some 47% of small businesses indicated that they raised average selling prices in May, the highest share since 1981, according to a survey conducted by the National Federation of Independent Business, a trade association.
Many consumers are willing to pay higher prices than they might normally be after spending more than a year cooped up at home, said
chief U.S. economist at High Frequency Economics.
“Right now what you have, especially among people who didn’t lose their jobs and get to go on vacation, is, ‘My tolerance is a little higher right now,’” she said.
73, of The Villages, Florida, has been conscious of rising prices for food, rent, gasoline, auto insurance, healthcare and travel. He said that he and his wife, Sandy, have been going out to dinner less in part because of higher prices and because they are increasingly anxious about the Delta variant of the coronavirus.
The couple encountered significantly higher food prices at the local cinema while attending the film “Cruella.”
“A hot dog at the movies was $7,” he said, adding that before the pandemic he paid about $4. Mr. Bodenstein opted to pass on the hot dog and other concession foods. “All the prices were through the roof,” he said. “You just say, ‘Forget about it.’”
Write to Gwynn Guilford at email@example.com
Corrections & Amplifications
The consumer-price index increased a seasonally adjusted 0.9% in June from May, the largest one-month change since June 2008. An earlier version of this article incorrectly said the index rose a seasonally adjusted 1%. (Corrected on July 13, 2021)
Eurozone out of recession after economy grows 2% – BBC News
The eurozone’s economy grew by 2% in the second three months of the year, taking the region out of recession.
New figures suggest there was growth in all the individual national economies which reported data.
The 19-nation bloc had suffered a so-called double-dip recession when the economy contracted in the previous two quarters.
However, the eurozone remains 3% down from its pre-pandemic level in late 2019.
A recovery is under way in the region after the surge in coronavirus infections in the winter.
In Italy and Spain, two countries whose economies were badly damaged by the pandemic, growth approached 3% in both.
There was an even stronger rebound in Austria and Portugal, with the latter reporting its economy had expanded by 4.9%.
Tourism benefits Portugal
The eurozone’s two largest economies saw more moderate growth, 1.5% in Germany and 0.9% in France.
The growth statistics are first estimates, so there is little detail showing the breakdown of the pattern of recovery.
However, household spending made an important contribution in France, Germany and especially in Spain. In France there was a surge in the hotel and restaurant trade of 29%.
Andrew Kenningham, chief Europe economist at Capital Economics, said Portugal’s rebound might reflect “a slightly less disastrous tourism season than Spain’s”.
He forecasted “another strong number for eurozone GDP” in the third quarter of the year, which “would bring the economy close to, but below, its pre-pandemic level”.
In contrast, the US has closed that gap, however, US employment is still down and economic activity is below where it probably would have been had there not been the pandemic.
Other new eurozone figures showed the number of people unemployed fell by more than 400,000 in June, though it is still one million higher than the low it hit early last year.
Canada's economy shrank for 2nd month in a row in May – CBC.ca
Canada’s gross domestic product shrank by 0.3 per cent in May, the second consecutive monthly contraction as most industries slowed down.
Statistics Canada reported Friday that most industries shrank, especially construction, manufacturing and retail.
Even Canada’s red hot real estate sector shrank for the second month in a row. The real estate and rental and leasing sector was down 0.4 per cent in May after falling by 0.8 per cent in April. That’s the first two-month streak of declines since March and April of 2020.
“As housing sales and construction levels gradually return to more sustainable levels, this area of the economy could be a drag on growth in coming months,” TD Bank economist Sri Thanabalasingam said.
Agriculture and forestry, mining and oil and gas extraction, utilities and the public sector all expanded slightly.
All in all, the total value of all the goods and services produced by Canada’s economy was just shy of $1.98 trillion during the month. That’s still two per cent below the slightly more than $2 trillion that the economy was worth in February 2020.
The numbers for May come at the time when Canada’s economy was on the downslope of the third wave of COVID-19, and much of society was on some sort of lockdown or reduced capacity. But there are signs that a rebound has happened since.
Preliminary data for June suggests the economy grew by 0.7 per cent during the month. And July may have been even better — credit and debit card data suggests that consumers returned to spending on high-contact services including in-person dining, recreation activities and travel that had long been restricted to them, Thanabalasingam said.
June’s uptick means the economy will expand by about 0.6 per cent in the second quarter overall. That’s about a 2.5 per cent annual pace — much slower than the 6.5 per cent pace the U.S. economy clocked in the same period, but much better than the 8.3 per cent contraction seen in countries that use the euro.
Thanabalasingam said the data for May and June show just how up and down the economy may go from here on out.
“It may not be smooth sailing for the rest of the recovery,” he said.
“The delta variant is wreaking havoc around the world, leading to a retightening of restrictions in some countries. Canada has so far avoided the worst of this virus, but cases are rising in some provinces. A fourth wave could lead to another stalling in the recovery, though with relatively high rates of vaccination a full reversal appears less likely.”
After Quickly Expanding, The Economy Is Expected To Slow – NPR
ARI SHAPIRO, HOST:
Today’s discouraging news about the pandemic comes after a spring when the U.S. economy reawakened. Vaccines were widely available, people went out to eat, and they started traveling again. In April, May and June, the U.S. economy grew by a healthy 6.5%. NPR’s David Gura joins us with more. Hi, David.
DAVID GURA, BYLINE: Hey, Ari.
SHAPIRO: So what does this 6.5% number actually tell us?
GURA: Well, it tells us the size of the economy is larger than it was before the pandemic, if you adjust for inflation. And that’s good news. That means the economy is now expanding. I talked to James Sweeney. He’s the chief economist at Credit Suisse. And I asked him how he interprets today’s numbers. Sweeney says it wasn’t as big as he expected it would be, but he’s still happy with it.
JAMES SWEENEY: The economy’s growing strongly, and we’ve got more growth ahead. This is the kind of negative miss (ph) that shouldn’t panic anybody.
GURA: And I’ll note here, it didn’t seem to panic investors on Wall Street. In fact, today the stock market once again hit some new records, Ari.
SHAPIRO: Yeah, what is driving the stock market growth over these last few months?
GURA: Yeah, the growth in the stock market and the economy – it’s been consumer spending, which is a huge part of the economy. The other day, I did some anecdotal research, anecdotal reporting – stopped by maybe a dozen small businesses near me just to see how they’re doing. And Melissa Ocampo (ph) is the manager of a toy store in Brooklyn. She told me things have gotten much better.
MELISSA OCAMPO: People seem to be back and running around and shopping for the kids and birthday parties and balloons.
GURA: Business has been steady, Ocampo (ph) told me, but she hopes it picks up even more. In the second quarter of this year, this transition happened, Ari. People who had been buying stuff – TVs, computers, yes, toys as well – started spending money at restaurants and on trips as vaccines became more widely available. And today’s GDP data reflect that big uptick in spending, which was larger than economists expected.
SHAPIRO: And yet this week there has been such a shift, largely driven by the delta variant – new mask mandates, vaccine mandates. What does the rest of the year look like?
GURA: Yeah, economists I talked to say they expect this growth to continue, but they are seeing potential risks to the recovery. So were small businesses. What worries Melissa Ocampo at my local toy store is the pandemic and the delta variant more specifically. She is afraid of what could happen to the store and to her if sales were to slow down again or if there were another shutdown. After the store closed temporarily last spring, Ari, Ocampo managed to find another job at a supermarket.
OCAMPO: I’m like, am I going to, like – am I not going to be with, like, a job towards the end of the year, or are we in, like, what’s just – it’s just uncertain and scary for sure.
GURA: Now, economists don’t think we’ll see the kind of shutdowns we saw at the beginning of the pandemic. For one thing, almost half the population now in the U.S. is fully vaccinated.
SHAPIRO: What else is keeping small-business owners up at night?
GURA: Well, inflation for one, how prices have gone up, problems with supply chains as well – that’s another issue. It’s gotten harder to get the products people want because of demand, and manufacturers are having trouble getting new materials. The supply chain issues show up in today’s GDP data. It was a big drag on growth in the second quarter. And one other worry among small-business owners is the jobs market.
SHAPIRO: Yeah, tell us more about that specifically.
GURA: Well, employers say it’s gotten harder for them to find workers. Some of them are worried about getting sick. Then there’s the lack of reliable child care. That’s a big issue. Ralph Elia owns a frame shop called KC Arts. He’s been in the business for about four decades. And he told me he’s had trouble hiring workers, which is something he blames on expanded unemployment benefits.
RALPH ELIA: I agree with it in the beginning, if you really needed it. But at some point, they should have slowed it down or cut it off, I’m sorry to say, because we need to hire people. People need to get out and work.
GURA: And that argument is what led about two dozen states to end those expanded benefits early, Ari. They’ll expire for all the remaining states in just a couple months.
SHAPIRO: NPR’s David Gura, thanks for the update.
GURA: Thank you.
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