Headline US CPI inflation reached 5.4% in June and many are seeing this as sign of a new higher inflation regime. However, all the signs are that inflation is narrow and transitory. Indeed, when we adjust for base effects by comparing CPI levels to a 2019 base, we find headline inflation is closer to annualised rate of 3%. Moreover, all the higher inflation is driven by the goods sector whether food or used cars, which is seeing annualised inflation of a whopping 20.7%.
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Headline US CPI inflation reached 5.4% in June and many are seeing this as a sign of a new higher inflation regime. However, all the signs are that inflation is narrow and transitory. Indeed, when we adjust for base effects by comparing CPI levels to a 2019 base, we find headline inflation is closer to an annualised rate of 3%. Moreover, all the higher inflation is driven by the goods sector whether food or used cars, which is seeing annualised inflation of a whopping 20.7%. Core services inflation is running at 2.5% which is lower than the preceding few years (Chart 1). Shelter costs, transportation services, and tuition prices are all seeing lower inflation than earlier, and while healthcare costs have risen, they are likely to be contained under a Biden administration. The bottom line is that there is no evidence that inflation is widespread and persistent.