June marked the fourth consecutive month for inflation above an 8% rate and inflation experienced its largest year-over-year gain in June since November 1981. According to the NAHB, the persistent inflation is likely to push the Federal Reserve to continue tightening monetary policy and raise rates at an accelerated pace, likely at least 75 basis points.
The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 1.3% in June on a seasonally adjusted basis, following an increase of 1.0% in May. This was the largest monthly increase since September 2005. Excluding the volatile food and energy components, the “core” CPI increased by 0.7% in June, following an increase of 0.6% in the past two months. While the increase was broad-based, the indexes for gasoline, shelter, and food were the largest contributors to the increase in the headline CPI in June.
The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.6% in June, the same increase as in May. The indexes for owners’ equivalent rent (OER) increased by 0.7% and rent of primary residence (RPR) increased by 0.8% over the month, the largest monthly increase since April 1986. Monthly increases in OER have averaged 0.6% over the last three months. More cost increases are coming from this category, which will add to inflationary forces in the months ahead. These higher costs are driven by lack of supply and higher development costs. Higher interest rates will not slow these costs, which means the Fed’s tools are limited in addressing shelter inflation.
During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 9.1% in June, following an 8.6% increase in May. The “core” CPI increased by 5.9% over the past twelve months, following a 6.0% increase in May. The food index rose by 10.4% and the energy index climbed by 41.6% over the past twelve months.
