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Inflation Monitor

Economist Milton Friedman famously said, “inflation is always and everywhere a monetary phenomenon.” The more money that is circulating in an economy chasing limited goods and services, the higher inflation is likely to be.

Inflation measures the rate of rising prices of goods and services in our economy. Another way to view inflation is a decline in money’s purchasing power over time: Because of rising prices, a dollar buys fewer goods and services than it did previously.

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Changes in Price Indexes 2019-2022

June 2022:

Prices rose 1.3% during the month of June for an increase of 9.1% over the past year according to the CPI, up from May’s 1.0% monthly price increase and the 8.6% jump in prices over the 12 months ending in May. Inflation continues to outpace projections and shatter records set four decades ago.

  • Energy prices were one of the largest contributors to the overall increase in June, up 7.5% during the month and 41.6% in the past year. Americans continue to feel the pain of rising gasoline prices, with its index jumping 11.2% in June–much higher than May’s 4.1% increase—and 59.9% annually. It is the largest 12-month increase in that index since 1980.
  • While growth in food prices slowed to 1.0% in June—a decrease from May’s 1.2% rise—it continues to be one of the most visible sources of inflation as the “food at home” index (grocery purchases) rose 12.2% over the past 12 months, the largest year-over-year increase since 1979.
  • Core inflation, which includes all items except energy and food, rose 0.7% in June, a slight increase from May. Although shelter costs remained flat since the prior month, they have risen 5.6% over the past 12 months and continue to stretch household finances. Keeping with trends over the past several months, the pace of inflation in core services (all services less energy services) also rose again, up 0.7% in June. The year-over-year increase now stands at 5.5% as inflation remains an issue in both the goods and services sectors.
  • The PCE index rose 6.8% relative to June 2021.

May 2022:

Prices rose 1% during the month of May for an increase of 8.6% over the past 12 months according to the CPI, up from April’s 0.3% monthly price increase and the 8.3% jump in prices over the 12 months ending in April. It is the highest year-over-year increase of any month in 2022 so far, topping the 8.5% record set in March.

  • Energy prices rose once again, increasing by 3.9% in May, contrasting with April’s decline. Gasoline prices rose as well, with the index spiking by 4.1%. The energy index is 34.6% higher than one year ago, the largest 12-month increase since 2005.
  • Food prices rose by 1.2% in May, in keeping with trends seen over the past year and a half. The “food at home” index (grocery purchases) increased by 1.4% from April. It now stands 11.9% higher than one year ago. Overall, the food index rose 10.1% over the 12 months ending in May, the first double-digit year-over-year increase since 1981.
  • Core inflation, which measures all prices except for the volatile energy and food categories, rose 0.6% in May, the same as in April. In a particularly concerning development, the pace of inflation in core services (all services less energy services) quickened for the fourth consecutive month. Core service prices rose 0.6% in May for an annual increase of 5.2%, demonstrating that the inflation problem originating in the goods sector has increasingly spilled over into the services sector.
  • The PCE index rose 6.3% relative to May 2021.

April 2022: 

Prices rose 0.3% in April for an increase of 8.3% over the past 12 months according to the CPI, down from March’s 1.2% monthly price increase and the 8.5% jump in prices over the 12 months ending in March.  

  • Energy prices declined month-to-month for the first time this year, falling 2.7% in April. Consumers found slight relief at the pump, as gasoline prices dropped 5.4%. However, this decline was partially offset by higher natural gas and electricity prices, and gasoline prices remain 43.6% higher than one year ago.  
  • Food prices rose by 0.9% in April—the seventeenth consecutive monthly increase. The “food at home” index (grocery purchases) ticked up by 1.0%. It now stands 10.8% higher than one year ago, the largest annual increase since 1980.  
  • Core inflation, which measures all prices except for the volatile energy and food categories, rose 0.6% in April, compared to a 0.3% increase in March. In a particularly concerning development, the pace of inflation in core services (all services less energy services) quickened for the fourth consecutive month. Core service prices rose 0.7% in April for an annual increase of 4.9%.
  • The PCE index rose 6.3% relative to April 2021.

March 2022: 

Prices rose 1.2% in March for an increase of 8.5% over the past 12 months according to the CPI, the highest year-over-year increase in more than 40 years.  

  • Gas prices soared by 18.3% in March and accounted for more than half of the month’s total price increase. Overall energy prices rose 11.0% in March, bringing the 12-month increase to 32.0%. The war in Ukraine has upset global energy markets, driving up energy costs that were on the rise already. 
  • Food prices ticked up by 1.0% in March, the same increase as was recorded in February. Once again, the “food at home” index (grocery purchases) was the primary contributor to this increase, rising 1.5% in March. Grocery prices have leaped 10.0% during the past year.  
  • Inflation remained elevated even outside of energy and food—the two categories most impacted by the war in Ukraine. Core inflation (all items less energy and food) rose 0.3% in March. Core inflation was up 6.5% year-over-year, the largest increase since 1982. The shelter index was the largest contributor to core inflation, with prices jumping 0.5% in March alone.  
  • The PCE index rose 6.6% relative to March 2021.

February 2022: 

Prices rose 0.8% in February for an increase of 7.9% over the past 12 months according to the CPI, ticking even higher than January’s inflation level and once again setting a record for the largest year-over-year climb in 40 years. Notably, this does not include the effects of the war in Ukraine, which will likely appear in the March data, particularly in energy and food prices.   

  • Energy costs rose by 3.5% overall in February, with a 6.6% increase in gas prices (following a 0.8% price decrease in January) accounting for nearly one-third of the February CPI increase. Strong oil market demand, even prior to the war in Ukraine, largely drove this spike and could further elevate prices moving forward.  
  • Food prices increased by 1.0% in February, following a 0.9% increase in January. The “food at home” index (grocery purchases) jumped by 1.4%, while the “food away from home” index (restaurant purchases) crept up by 0.4%, reflecting the particularly high prices consumers face in the grocery aisle.    
  • Prices for new vehicles increased by 0.3% this month while prices for used cars and trucks decreased 0.2%, potentially indicating a deceleration of the rapid 41.2% rise over the past year.   
  • The PCE index rose 6.4% relative to February 2021.

January 2022:

Prices rose 0.6% in January for a total increase of 7.5% over the past 12 months according to the CPI, marking the largest year-over-year climb in 40 years (since February 1982).

  • Food prices grew 0.9% following a 0.5% increase in December 2021.
  • Energy costs also rose by 0.9% in January, despite a 0.8% drop in gas prices.
  • Prices for used vehicles increased 1.5%, reflecting continued strong consumer demand and manufacturing delays for new cars, the prices for which remained stable.
  • Such impacts were also apparent in household furnishing prices, which followed their 1.1% December bump by climbing 1.3%.
  • The PCE index rose 6.1% relative to January 2021.

2021 in Review:

Inflation emerged as a significant issue facing the American economy in 2021, as the COVID-19 pandemic and economic recovery led to notable price increases in certain sectors dependent on global supply chains. The CPI rose 7.0% over the course of the year, the largest 12-month increase since the period ending in June 1982. The PCE index rose 5.8% year over year. Over the 12 months ending in December 2021:

  • Food prices jumped by 6.3%, with the “meats, poultry, fish, and eggs” category notching a 12.5% increase.
  • Gasoline prices spiked nearly 50%, as overall energy costs increased 29.3%.
  • Prices of new and used cars rose by 11.8% and 37.3%, respectively, fueled by manufacturing slowdowns, a microchip shortage, and strong consumer demand.
  • What is the current state of inflation?

    June 2022:

    Prices rose 1.3% during the month of June for an increase of 9.1% over the past year according to the CPI, up from May’s 1.0% monthly price increase and the 8.6% jump in prices over the 12 months ending in May. Inflation continues to outpace projections and shatter records set four decades ago.

    • Energy prices were one of the largest contributors to the overall increase in June, up 7.5% during the month and 41.6% in the past year. Americans continue to feel the pain of rising gasoline prices, with its index jumping 11.2% in June–much higher than May’s 4.1% increase—and 59.9% annually. It is the largest 12-month increase in that index since 1980.
    • While growth in food prices slowed to 1.0% in June—a decrease from May’s 1.2% rise—it continues to be one of the most visible sources of inflation as the “food at home” index (grocery purchases) rose 12.2% over the past 12 months, the largest year-over-year increase since 1979.
    • Core inflation, which includes all items except energy and food, rose 0.7% in June, a slight increase from May. Although shelter costs remained flat since the prior month, they have risen 5.6% over the past 12 months and continue to stretch household finances. Keeping with trends over the past several months, the pace of inflation in core services (all services less energy services) also rose again, up 0.7% in June. The year-over-year increase now stands at 5.5% as inflation remains an issue in both the goods and services sectors.
    • The PCE index rose 6.8% relative to June 2021.

    May 2022:

    Prices rose 1% during the month of May for an increase of 8.6% over the past 12 months according to the CPI, up from April’s 0.3% monthly price increase and the 8.3% jump in prices over the 12 months ending in April. It is the highest year-over-year increase of any month in 2022 so far, topping the 8.5% record set in March.

    • Energy prices rose once again, increasing by 3.9% in May, contrasting with April’s decline. Gasoline prices rose as well, with the index spiking by 4.1%. The energy index is 34.6% higher than one year ago, the largest 12-month increase since 2005.
    • Food prices rose by 1.2% in May, in keeping with trends seen over the past year and a half. The “food at home” index (grocery purchases) increased by 1.4% from April. It now stands 11.9% higher than one year ago. Overall, the food index rose 10.1% over the 12 months ending in May, the first double-digit year-over-year increase since 1981.
    • Core inflation, which measures all prices except for the volatile energy and food categories, rose 0.6% in May, the same as in April. In a particularly concerning development, the pace of inflation in core services (all services less energy services) quickened for the fourth consecutive month. Core service prices rose 0.6% in May for an annual increase of 5.2%, demonstrating that the inflation problem originating in the goods sector has increasingly spilled over into the services sector.
    • The PCE index rose 6.3% relative to May 2021.

    April 2022: 

    Prices rose 0.3% in April for an increase of 8.3% over the past 12 months according to the CPI, down from March’s 1.2% monthly price increase and the 8.5% jump in prices over the 12 months ending in March.  

    • Energy prices declined month-to-month for the first time this year, falling 2.7% in April. Consumers found slight relief at the pump, as gasoline prices dropped 5.4%. However, this decline was partially offset by higher natural gas and electricity prices, and gasoline prices remain 43.6% higher than one year ago.  
    • Food prices rose by 0.9% in April—the seventeenth consecutive monthly increase. The “food at home” index (grocery purchases) ticked up by 1.0%. It now stands 10.8% higher than one year ago, the largest annual increase since 1980.  
    • Core inflation, which measures all prices except for the volatile energy and food categories, rose 0.6% in April, compared to a 0.3% increase in March. In a particularly concerning development, the pace of inflation in core services (all services less energy services) quickened for the fourth consecutive month. Core service prices rose 0.7% in April for an annual increase of 4.9%.
    • The PCE index rose 6.3% relative to April 2021.

    March 2022: 

    Prices rose 1.2% in March for an increase of 8.5% over the past 12 months according to the CPI, the highest year-over-year increase in more than 40 years.  

    • Gas prices soared by 18.3% in March and accounted for more than half of the month’s total price increase. Overall energy prices rose 11.0% in March, bringing the 12-month increase to 32.0%. The war in Ukraine has upset global energy markets, driving up energy costs that were on the rise already. 
    • Food prices ticked up by 1.0% in March, the same increase as was recorded in February. Once again, the “food at home” index (grocery purchases) was the primary contributor to this increase, rising 1.5% in March. Grocery prices have leaped 10.0% during the past year.  
    • Inflation remained elevated even outside of energy and food—the two categories most impacted by the war in Ukraine. Core inflation (all items less energy and food) rose 0.3% in March. Core inflation was up 6.5% year-over-year, the largest increase since 1982. The shelter index was the largest contributor to core inflation, with prices jumping 0.5% in March alone.  
    • The PCE index rose 6.6% relative to March 2021.

    February 2022: 

    Prices rose 0.8% in February for an increase of 7.9% over the past 12 months according to the CPI, ticking even higher than January’s inflation level and once again setting a record for the largest year-over-year climb in 40 years. Notably, this does not include the effects of the war in Ukraine, which will likely appear in the March data, particularly in energy and food prices.   

    • Energy costs rose by 3.5% overall in February, with a 6.6% increase in gas prices (following a 0.8% price decrease in January) accounting for nearly one-third of the February CPI increase. Strong oil market demand, even prior to the war in Ukraine, largely drove this spike and could further elevate prices moving forward.  
    • Food prices increased by 1.0% in February, following a 0.9% increase in January. The “food at home” index (grocery purchases) jumped by 1.4%, while the “food away from home” index (restaurant purchases) crept up by 0.4%, reflecting the particularly high prices consumers face in the grocery aisle.    
    • Prices for new vehicles increased by 0.3% this month while prices for used cars and trucks decreased 0.2%, potentially indicating a deceleration of the rapid 41.2% rise over the past year.   
    • The PCE index rose 6.4% relative to February 2021.

    January 2022:

    Prices rose 0.6% in January for a total increase of 7.5% over the past 12 months according to the CPI, marking the largest year-over-year climb in 40 years (since February 1982).

    • Food prices grew 0.9% following a 0.5% increase in December 2021.
    • Energy costs also rose by 0.9% in January, despite a 0.8% drop in gas prices.
    • Prices for used vehicles increased 1.5%, reflecting continued strong consumer demand and manufacturing delays for new cars, the prices for which remained stable.
    • Such impacts were also apparent in household furnishing prices, which followed their 1.1% December bump by climbing 1.3%.
    • The PCE index rose 6.1% relative to January 2021.

    2021 in Review:

    Inflation emerged as a significant issue facing the American economy in 2021, as the COVID-19 pandemic and economic recovery led to notable price increases in certain sectors dependent on global supply chains. The CPI rose 7.0% over the course of the year, the largest 12-month increase since the period ending in June 1982. The PCE index rose 5.8% year over year. Over the 12 months ending in December 2021:

    • Food prices jumped by 6.3%, with the “meats, poultry, fish, and eggs” category notching a 12.5% increase.
    • Gasoline prices spiked nearly 50%, as overall energy costs increased 29.3%.
    • Prices of new and used cars rose by 11.8% and 37.3%, respectively, fueled by manufacturing slowdowns, a microchip shortage, and strong consumer demand.
  • How is inflation measured?

    Two main indices measure inflation: the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) price index.

    1. Consumer Price Index (CPI): Produced monthly by the Bureau of Labor Statistics (BLS), the CPI measures consumer price changes for all urban consumers, accounting for most of the U.S. population. Each month, the CPI’s fixed “basket” is constructed using 80,000 household goods and services, including food, clothing, shelter, transportation, and medical services. Through surveys administered to households across the country, BLS assigns a weight to each item dependent on its relative importance to the average consumer. BLS then aggregates the price changes for these individual items to calculate overall inflation.
    2. Personal Consumption Expenditures (PCE): Produced monthly by the Bureau of Economic Analysis, the PCE price index is the primary measure of inflation used by the Federal Reserve. Whereas the CPI primarily relies on consumer surveys to determine the relative weights of various expenditures, the PCE price index assigns weights using business surveys, leading to an alternative composition of goods and services in the basket. It also accounts for substitutions between goods by adjusting weights accordingly when one becomes relatively more expensive. Finally, the PCE price index has a slightly wider scope than the CPI: While the CPI measures changes in expenditures for urban consumers, the PCE price index measures price changes for all consumers, as well as nonprofits and government programs that serve households.

    Both measures also have “core” indices that exclude the food and energy industries. Some policymakers, such as the Federal Reserve, use core inflation to predict inflation because food and energy price volatility can make it difficult to discern trends from the overall inflation rate.

  • Is inflation bad for consumers and the economy?

    Not necessarily. Moderate, stable inflation is indicative of a healthy economy. As the economy grows, consumer demand increases, causing businesses to respond with increased labor needs and relatively higher prices to meet excess demand. In fact, the Federal Reserve sets a long-term inflation target of 2% and has several tools at its disposal to try to keep price levels under control.

    For borrowers, inflation can be a benefit, as debtors pay back their loans with future dollars that have less value than when the loan began. However, inflation also acts as a tax on wages and investments, decreasing the purchasing power from one’s wages or investment returns. High levels of inflation can negate wage growth and erode standards of living over time.

  • What is driving recent inflation?

    The spike in inflation that began in early 2021 can be attributed to the country’s economic recovery from the COVID-19-induced recession, as the labor market continues to rebound and consumers spend on many goods above pre-pandemic levels. Suppliers, however, have struggled to adjust their production capabilities and supply chains to meet the change in consumer behavior. For example, in October 2021, the trucking industry was 80,000 drivers short, which contributed to the high-profile backlog at U.S. ports in the fall of 2021. Furthermore, a global shortage of semiconductor chips has disrupted the production of goods ranging from cars to laptops to refrigerators. With demand outpacing supply throughout the economy, the result has been widespread price increases. Moreover, low interest rates have made it easier for consumers to borrow and spend, further fueling this trend.

    Fiscal stimulus has also stoked inflation, which economists estimate will contribute modestly to increased inflation through 2022. Nearly $4.6 trillion has been enacted to support relief efforts since March 2020, which has provided varied forms of assistance to families, workers, businesses, and local governments. At the same time, workers are quitting jobs at record rates, prompting employers to offer higher wages and bonuses to entice workers. As a result of both government transfers and higher wages, Americans have saved more during the pandemic: The median household’s checking account balance was 50% higher in July 2021 than it was two years prior, fueling spending on goods.

  • How can policymakers respond to inflation?

    The Federal Reserve is the arm of the government with the most tools to address inflation. Its dual mandate stipulates that it keep unemployment low and prices stable. To bring inflation down it can increase interest rates, or the cost of borrowing, which also has the effect of slowing economic activity. Federal Reserve Chairman Jerome Powell has described inflation as a “severe threat” and indicated that the central bank will act to address rising prices. Accordingly, analysts expect that the Federal Reserve will raise rates as early as March 2022 and have penciled in three rate increases over the course of the year. The Federal Reserve has also begun tapering the monetary stimulus it provided at the start of the pandemic by reducing its $120 billion in monthly purchases of Treasury and mortgage-backed securities. Additionally, while legislators are generally limited in their ability to control inflation, fiscal policy—especially setting tax rates and levels of public spending—can impact consumer decisions and the levels of supply and demand that influence inflation.

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