Prices for a lot of things are higher. Used cars and trucks, furniture, airline tickets, and bicycles are just some of the items that are much more expensive compared to a year ago.
But about a year ago prices for a lot of stuff plummeted. The pandemic was raging in the spring of 2020. Stay-at-home requests, business restrictions, mass layoffs and furloughs were common as the economy hit a sudden and deep depression because of the COVID-19 virus.
June is a key month for inflation this year. A year ago, June is when the pandemic disinflation ended, and consumer prices showed some life. The June 2021 consumer inflation data is due out Tuesday.
The report is key, in part, because of timing. Since the inflation rate often is expressed as a percent change compared to a year earlier, the picture of prices 12 months ago sets the frame for what the data show today. This spring’s CPI readings of 4.1% higher in April and 5% higher in May are significant, however, the inflation rate a year earlier was close to zero.
This timing is part of the reason why the Federal Reserve has been insistent that this spring’s inflation jump is transitory. It has stuck with its easy money policies such as buying tens of billions of dollars a month of government and mortgage-backed bonds and keeping its target short-term interest rate at zero.
As vaccines have become more widespread, business restrictions lifted and Americans emerge from more than a year of pandemic-forced austerity, demand has outstripped supply underpinning higher prices — for the time being. That’s the other reason the Fed presumes this higher inflation is temporary. It expects supply chains will catch up to demand in the months ahead, tempering sharply higher prices.
For now, the stock and bond markets seem to agree. Investors will be looking at the June inflation data for early signs a transition actually is taking place.
Financial journalist Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami, where he is the vice president of news. He is the former co-anchor and managing editor of “Nightly Business Report” on public television. Follow him on Twitter @HudsonsView.