Auto & Transportation

Boosted by large-scale fiscal and monetary stimulus policies, the U.S. economy has recovered strongly, and Americans have begun shopping, traveling, and dining out again.

As consumer spending continues to increase, almost everything has become more expensive. However, the new crown epidemic is far from over, and the chaotic supply chain means that the supply cannot meet the strong demand in a short period of time.

As a result, prices rose further.

Data released by the US Bureau of Labor Statistics on Wednesday showed that among the inflation indicators used by the government, almost all major indicators showed an upward trajectory in April.

Specifically, the U.S. consumer price index rose 4.2% in April from the same period last year, exceeding the 3.6% expected by economists, marking the largest 12-month increase since the worst period of the financial crisis in September 2008. After seasonal adjustments, US house prices rose by 0.8% in March-April, which was also higher than analyst expectations.

Excluding the volatile food and energy prices, the core inflation rate in the United States for the 12 months ending in April was 3%, the largest increase since January 1996. Core prices rose 0.9% in April, the largest monthly increase in 39 years.

PNC senior economist Bill Adams pointed out that inflation is accelerating because “as more and more Americans are vaccinated against the new crown, large-scale stimulus measures boost consumer spending, and companies are preparing for recovery. The U.S. economy is recovering from the 2020 downturn."

Used cars and trucks become the biggest pushers

The biggest driver of the sharp increase in inflation in April was the 10% increase in the price of used cars and trucks. This increase accounted for more than one-third of the overall increase in inflation, and it was also the largest price increase since the U.S. government began tracking the data in 1953. In the past year, used car prices have risen by 21%.

As we all know, since the new crown epidemic has swept the United States, the auto market has experienced a big ups and downs-first because people were trapped in their homes and suddenly collapsed, and then they soared because of their search for vehicles that do not rely on public transportation.

In addition, due to the shortage of chips, many automakers have either shut down or cut production, which has greatly boosted consumer demand for used cars.

FreedomWorks senior economics writer Steve Moore (Steve Moore) pointed out, "The government has given people a lot of "windfall" to enable them to buy cars."

In Moore's view, the supply chain interruption leading to a decrease in new car production is the main reason for the soaring price of used cars when demand increases. According to data released by Edmunds, an online car buying guide, dealers' inventory of new cars in March dropped by 36% year-on-year.

At the beginning of last month, the two major auto manufacturing giants GM and Ford said that due to the shortage of chip supply, which has had a serious impact on the global auto industry, they will cut more car production. Ford said that during the traditional shutdown week this summer, more factories will remain in operation to make up for the loss in production. GM said that the latest production cuts have been factored into its forecasts, and the shortage of chips may cost the company up to $2 billion in profits this year.

Rising prices for housing and accommodation, air tickets, entertainment activities, auto insurance and furniture also contributed to higher inflation in April. Obviously, people are willing to travel again. After a year of extremely limited operations, in the face of strong demand and insufficient supply, American companies chose to increase prices.

Pantheon Macroeconomics chief economist Ian Shepherd (Ian Shepherdson) pointed out that “the reopening of the service industry is one of the main factors leading to upward inflation.

However, the new crown epidemic also played an important role. People need to return to work, but because they are unwilling to use public transportation, many people's demand for second-hand cars has increased, leading to soaring prices of second-hand cars. Of course, this situation will not last forever. "

As grocery and restaurant prices are rising, food prices rose 0.4% month-on-month in April and 2.4% year-on-year. At the same time, energy prices, which have been the main driver of inflation in the past few months, have fallen slightly. Even so, in the past 12 months, the energy price index has risen by more than 25%.

Supply is always inadequate

As the global economy recovers from the impact of the new crown epidemic in 2020, price increases, supply chain issues, and shortages have become hot issues in the global economy. As the economy reopens on a larger scale, inflation is expected to continue to rise. The Federal Reserve, whose mission is to maintain price stability, has always emphasized that the moderate price increase this summer will be temporary.

On Tuesday, Fed Governor Lael Brainard (Lael Brainard) stated that the condition for a sustained increase in the inflation rate is not only a period of increase in wages or prices after the economy restarts, but also a continuous rise in inflation expectations. The price increase for a limited period of time related to the new crown epidemic is unlikely to change the inflation trend in a long-term.

Powell said at a press conference after the interest rate decision at the end of April that the temporary rise in inflation this year did not meet the criteria for raising interest rates, and it seemed unlikely that inflation would continue to rise while the job market was still weak.

However, the longer the price increase lasts, the more the Fed will pay attention to inflation.

Supply chain problems, including the traffic jam on the Suez Canal in March and the hacking of the Colonial pipeline in the United States, undoubtedly exacerbated the global supply shortage. The prices of raw materials (oil, steel, wood) for various commodities are rising because demand exceeds supply. These realities are further driving up inflation.