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  • Inflation Figures Come in High Again, Pushed by Transitory Pressures

  • Consumers Roar, Small Businesses Mutter


Consumer prices again grew at an elevated pace last month as major economic sectors continue to work through supply chain disruptions that have limited the availability of some goods. The Consumer Price Index (CPI) rose 0.6% during May and is now up 5.0% YOY, the largest 12-month increase since August 2008.

The new- and used-vehicle indices accounted for a meaningful amount of the headline monthly gain as semiconductor shortages continue to impede automotive manufacturing. The production slowdown has reduced inventories of new cars, which has forced some buyers to settle for used vehicles. With higher demand and the stock of available cars flat, used-car prices jumped 7.3% last month.

Other components of the CPI are experiencing increases related to the economy reopening and unlocking pent-up demand in sectors that saw curtailed activity during the spring and summer last year. For example, domestic air travel has climbed to the highest level since the pandemic’s onset, pushing airline fares and car rental prices 7.0% and 12.1% higher respectively last month.

Baseline effects are also driving large year-over-year figures in some categories. For example, energy prices have increased 28.5% YOY, but a year ago energy prices had collapsed due to a rapid pullback in global demand.

Meanwhile, steady gains in wholesale inventories in recent months suggest supply chains may be catching up with demand in some sectors of the economy. Wholesale inventories rose 0.8% during April, slightly down from March’s pace of 1.2% but still elevated compared to late-2020 figures.

Consumer Price Index- Urban Consumers & Monthly Change


U.S. consumer activity, which over the past decade represented an average of 67.9% of domestic GDP, continues to increase and fuel the U.S. economy’s expansion. Notwithstanding rising gasoline prices and increasing mentions of inflation, consumer confidence surged above consensus for June, rising to 86.4 (+4.2% month-over-month) on the University of Michigan Index of Consumer Sentiment. The Consumer Expectations component of the index rose by 6.3% to come in at 83.8, which signals momentum as the economy continues to expand and ongoing job growth continues at a modest pace. Possibly fueling future sentiment is rising household wealth, which increased by $5 trillion to finish the first quarter at a record high of $139.6 trillion. Household asset increases meaningfully outpaced liabilities as consumer credit remained in check while mortgage debt continues to climb.

Amidst surging consumer confidence, small businesses surveyed in May are seeing the other side of the coin. When asked whether firms expected the economy would improve, the majority of responders have been negative for the past six months. In May, a greater number of survey respondents lowered their expectations with the net balance slipping to -26% from -15% in April. Overall, more firms expressed confidence in expanding, but labor markets appear to be causing consternation: 26% of firms said that labor quality was their top problem with another eight percent said labor costs were their top problem. In addition, a record-high 48% of small businesses reported unfilled job openings, aligning with the last JOLTS report (“Job Opening and Labor Turnover Survey”), which found the number of vacant positions nationwide jumped to 9.3 million at the end of April—far above the pre-pandemic peak of 7.5 million. The increase in job openings was broad-based across industries with the exception of mining.

The consumers are here, and the supply of labor needs to catch up to ease concerns about rising prices becoming non-transitory.

Consumer Sentiment and Small Business Sentiment, 2015 – 2021 YTD


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