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Inflation: CPI rises 9.1% in June, hottest increase in 40 years

Yahoo Finance Live anchors discuss June consumer price index (CPI) data.

Video Transcript

- Headline CPI rose 9.1% in the month, raising fears in the markets of a more aggressive pace of rate hikes from the Federal Reserve. Let's bring in Yahoo Finance's Brian Cheung on this. Brian, double-barreled question. One, what drove some of these increases and what are the implications for the Fed's next move?

- Yes. Let's start off with the first bit of that. Again, if we unpack the numbers that we got about 30 minutes ago from the Bureau of Labor statistics. You can see on a year over year basis, prices increased in America by 9.1% above the street's estimates of 8.8%. So a hotter than expected report. Again, that's the hottest pace that we've seen since November of 1981.

On a month over month basis, prices increased by 1.3%. Now, the Fed might argue let's take a look at the core CPI, which strips out those more volatile components like, for example, food, and energy. And when you take out those elements, you do see a lower inflation report of 5.9% on a year over year basis, 0.7% on a month over month basis. But, of course, you're going to have a lot of Americans saying, well, food and energy are the most important parts of my daily consumption. So why would we strip that out?

And, indeed, when you do look at the prices of gasoline, fuel oil, things that Americans were spending a lot of money on in the month of June, you did see increases on a month over month basis, 11.2% on gasoline, fuel oil did decline by 1%, food though increased by 1%.

You take a look at some other components of the CPI as well, interesting to see the reopening play out. You saw some prices decline, hotels and motels down over 3%. Airline fares, car and truck rentals down about 2%. But take a look at owners equivalent rent. This has been an argument for the more delayed bleed into higher inflation increasing by 0.7%. That shows an acceleration actually of inflation in what is a very large percentage of the average household expenditure, guys.

- Is there anything that we can extrapolate this to really show where consumers are pushing back on the prices that they do have to pay right now?

- Yeah, certainly. I mean, there is demand destruction in some of those larger durable items when you take a look at TVs, for example, declining by 2.3% on a month over month basis in this report. But, again, you look at that headline number, yes, you can maybe make it look a little bit better by taking a look at the core number, but it is still hot whether or not you look at a core reading or a headline reading.

So across the board, there is still a lot of demand, a lot of companies that are supplying either services or goods are continuing to raise prices as of the month of June. But keep in mind, the price declines that we saw, at least, in what you see at the pump didn't start to happen until a few weeks ago. So that really isn't reflected in this June report, that's the reason why you have some economists saying the July report could show signs of, perhaps, some easing. But, look, from the report we got 30 minutes ago, you're not seeing that quite yet well.

- Well, and I'm also curious, not just are we going to see some easing in gasoline itself, but then the feedthrough to everything else because gasoline is a factor and oil is a factor in so many of these other costs, right? Obviously, they have implications for airline fares, they have implications for food in terms of delivering the food and the prices that are being charged. So we know we're already seeing prices at the pump go down. How quickly does that tend to filter through into other stuff?

- Yeah. Well, I mean, there's a lag effect to all of this, right? And I think the first thing that you'll start to see and probably the most accurate real time number that we get, which is not all that real time because this report comes out about a month of a lag, right? Is in the gasoline and oil prices, right? Because that has the bleed through to everything else.

If oil prices get a little bit cheaper, that makes the input costs for businesses a lot cheaper as well, but that's not going to happen overnight even after we've seen the price declines in the beginning parts of July, for example. You might not see that impact into other types of non-oil categories until the later months of this year in the same way that you're seeing some impacts from this inflation report that are actually increasing, providing more upward pressure not start to reflect themselves until the summer months of this year, right?

Again, I was talking about owners equivalent rent. You didn't see that take up until, really, the middle and the beginning of this year, even though people were saying and, anecdotally, providing evidence that they were paying more for mortgages, paying more for their run at the end of last year. So, again, this really paints a very difficult picture for the Federal Reserve, which gets at the second part of your question, which I totally ignored.

- Thanks for not forgetting.

- And you're starting to see that the Fed is going to be under more pressure to break the credibility promise that they've already made in the last meeting when they said we're going to go by 50 or 75 basis points. You have markets now pricing in, I just checked a few minutes ago, a 30% chance of a 1%, or 100 bips as the smart people like to call it, interest rate increase at the end of this month. Again, that's doubting what the Fed has said so far, and that's very much understandable when you say, well, this inflation print was much hotter than expected, wouldn't that require higher interest rates to try to take that demand down.

- When is the Fed blackout period? Because now I'm thinking back to that journal story that came just before the last Fed meeting where they floated a higher pace of rate hikes. Do you think we could see something like that?

- Yeah, so we're not in the blackout period right now, so there's no reason why a Fed official or even Jay Powell himself can't come out in the next, let's say, a few days and say, hey, here's our reading on the inflation report, we're going to do this at the end of the month. The blackout period does, however, begin at the beginning of next week because the next policy setting announcement is going to be on the 27th as scheduled, so they'll stop speaking around, essentially, Saturday through the nine days after that period.

Now, again, we don't have any scheduled remarks. The only other Fed governor that we're expected to hear from is from Fed Governor Chris Waller tomorrow morning. That's definitely going to be one to watch in response to this. But, again, all the commentary leading up to today has been it's either 50 basis points or 75 basis points. Philly Fed President, Pat Harker, said that on our show a few weeks ago. That hasn't changed from anyone. Does this report change that? We'll have to see.

- And we have University of Michigan confidence on Friday, which is also going to be--

- That was a big part of the pivot for the June meeting.

- Yeah, so we'll see what that shows.

- Certainly. If bips are what the smart people are saying right now, I'm going to start using that everywhere, sports game, WaWa, anywhere. Bips. You guys are going to get these bips.

- By how many bips have your eggs gone up, for example?

- Many bips.

- All the bips.

- We can check that. We can check that. Eggs went up by 0.3% month over month.

- Still bips.

- 30 bips.

- Some people say beeps. That's a Jared Blikre special, beeps.

- We're going to have to workshop that one.

- Yeah.

- All right. Thanks so much. Brian Cheung joining us here on the day to break down all things CPI.