Wolf Street: Dollar's Purchasing Power Plunged at Fastest Pace since 1982

Article by Wolf Richter in Wolf Street

The Consumer Price Index jumped 0.9% in June from May, after having jumped 0.6% in May, and 0.8% in April – all of them the steepest month-to-month jumps since 2009, according to the Bureau of Labor Statistics today. The CPI without the volatile food and energy components (“core CPI”) jumped by 0.8% for the month and by 9.5% for the past three months annualized, the red-hottest “core CPI” since June 1982.

On an annual basis, including the periods of low inflation last fall, CPI jumped 5.4%. The CPI tracks the loss of the purchasing power of the consumer dollar – everything denominated in dollars for consumers, including what they can buy with their labor – and this dollar has dropped at a rate of 10.7% over the past three months annualized, the fastest drop since June 1982.

Loss of purchasing power is “permanent,” as the chart shows.

There is nothing “transitory” or “temporary” about the loss of purchasing power as the chart above shows. The only aspect of inflation or the loss of purchasing power of the dollar that is temporary, is the speed with which it progresses, faster or slower, from month to month.

Durable Goods inflation spiked 14.6%, biggest since at least the 1950s.

Durable goods, which include cars and trucks, appliances, consumer electronics, furniture, and the like, spiked by 3.5% in June from May and by 14.6% year-over-year, the biggest jump in the data going back to 1957. This jump was fueled by used and new vehicle prices.

Used Vehicle CPI exploded by 45% year-over-year, and by 10.5% in June.

In the inflation data today, there are completely understated components, such as housing inflation, which in reality is red hot. And there are temporary factors, such as the spike in used vehicles, that cannot last. And price increases are spreading to other categories.

What we will get in the future is ups and downs of the monthly inflation rate that will give false hopes of declining inflation, followed by increases that wipe out those hopes. And we still don’t see the actual inflation rates because of housing costs not being properly included and because of other strategies, such as the overly aggressive application of hedonic quality adjustments. So inflation is here, and it’s big, and it’s understated, but it will change up and down on a month to month basis.

Meanwhile, the Fed is still buying $40 billion a month in mortgage-backed securities, thereby repressing mortgage rates, thereby doing everything it can to further heat up inflation in the housing market, and it’s still .......

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