July 14, 2021
With a 5.4% increase compared to last year, the consumer price index (CPI) demonstrates the surge of inflation in the US, Reuters reports. Contrary to the estimated 0.5% CPI increase between May and June, there was a 0.9% increase—quite a high number compared to the 0.6% increase between April and May.
The inflation is driven by the increase in the prices for used cars and trucks, hotel accommodation, plane tickets, rent, and increased wages, among other things.
This CPI boom is the largest since September 2008. A few factors are influencing the inflation, which is why experts are optimistic that this hiccup is only temporary and expect things to start getting back to normal soon.
As things get back to pre-pandemic times, it’s expected that the inflation will settle, too. However, there is room for concern, as per Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania. He believes that “The big concern is that current high inflation gets built into consumers’ and businesses’ expectations, leading to higher long-run inflation, as happened in the 1970s,” but also adds that “the temporary nature of current inflation pressures and Fed watchfulness should prevent this from happening.”
Is Inflation Spreading to Other Sectors?
The sectors driving the inflation are mostly related to the country’s reopening as people are eager to go back to normal.
As people are getting back to their offices, they are also moving back to the cities. With a higher demand for living spaces, rent prices have soared. Americans are also eager to get back to traveling and make up for what they’ve missed during the past year, resulting in an increase in hotel accommodation and plane ticket prices.
Unemployment rates have reached record numbers globally, and there are also issues with worker shortages and a decreased labor pool. As a result, wages have increased, which is another factor contributing to the high CPI.
Used cars and trucks are responsible for one-third of the price surge by accelerating it by 10.5%. Compared to last year, prices have soared by an additional 45.2%. The reason for the drastic increase are supply shortages, especially of semiconductors. This has disrupted the production of motor vehicles, making prices soar as demand rises and leaving more people to look into auto financing options.
These sectors aren’t the only ones affecting inflation. Prices for gasoline, clothes, and even food have increased as demand is increasing as well.
Americans love shopping, so ecommerce is going stronger than ever, with projected sales of $4.5 trillion for 2021. In addition, food delivery is becoming easier than ever with companies such as Grubhub (the industry leader), DoorDash, and the like, making people more inclined to spend on food.
All this spending demand may be somewhat prompted by the increased spending power brought on by $6 trillion in COVID relief, coupled with lower interest rates than usual.