year-over-year in June 2022

• Consumer Prices (CPI) were up 9.1% in June 2022 in year-over-year terms (non-seasonally adjusted); seasonally adjusted inflation was 10.1% for the month
• Core CPI, excluding fuel and energy prices, posted a 5.9% year-over-year gain in June 2022 (seasonally adjusted), easing slightly from May (6.0%)
• An exceptionally large increase in Gasoline prices, up 11.2% for the month (seasonally adjusted), pushed the June CPI inflation result beyond all expectations
• Month-over-month CPI increases remained elevated in household necessity categories, including Food & Beverages, Housing, and Apparel

The Consumer Price Index (CPI) was up by 9.1% year-over-year (non-seasonally adjusted) and jumped by 10.1% accounting for seasonal adjustment influences. This is the first time that the seasonally adjusted increase has topped 10% since October 1981. The topline CPI increase was driven in large part by Gasoline and other energy prices throughout the first half of June. And while some easing on the energy price front can be expected given the trend at the pump over the past two weeks, other CPI categories continue to put pressure on U.S. households from all sides.

Core CPI gains decelerated in June 2022 to 5.9% year-over-year (seasonally adjusted). This compares to the 6.0% gain seen in the month prior. Month-over-month, however, Core CPI accelerated in June 2022 to 0.7%, from 0.6% in May. Much discussion will be had over gasoline prices’ influence on this month’s CPI numbers, but the continued strong gains in the cost of Housing (+0.8% month-over-month) and Apparel (+0.8% month-over-month), which fall outside of the Core CPI measure, must temper suggestions that hope for lower gasoline and energy bills will resolve inflation concerns in the near term.

And while Food & Beverages is also a “Core” concept that gets excluded from the Fed’s preferred measure of inflation when setting monetary policy, that category’s 1.0% month-over-month gain in June 2022 will at least factor into consumers’ inflation expectations, given its high visibility in monthly household budgets.

Both New and Used Vehicles saw year-over-year price growth ease in June 2022, falling to 11.4% and 7.1%, respectively, from 12.6% and 16.1% in May. Continued progress toward resolving supply chain issues will be slow, with semiconductor manufacturers and industry analysts projecting issues remaining well into 2023. But as that industry’s progress goes, so will the costs of new vehicles and the resulting impact on used car prices. With the Fed raising interest rates, and thus borrowing costs for consumers, a slowdown in vehicle price gains is sorely needed in order to retain any semblance of affordability in that space.

Consumer prices for Housing were up by 7.3% year-over-year in June 2022 on a seasonally adjusted basis. This is an acceleration from the 6.9% gain posted in May. Continued strong gains in this largest CPI category implies that housing costs will keep U.S. consumer budgets under significant strain in the months to come, even as home sales are easing in response to higher mortgage rates.

Those who have already purchased will be saddled with the high and still-rising cost of everyday household maintenance and essentials, leaving an ever-shrinking leftover balance for discretionary spending. Some higher-income households are still spending through the $2 trillion dollars in savings accumulated from stimulus payments sent during pandemic shutdowns, and lower-income households who exhausted those funds to pay bills have turned to increased credit card usage. But these trends will be short-lived if inflation remains anywhere near the June results in the Housing, Food & Beverages, and Energy categories for homeowners, suggesting that consumer support for the U.S. economy is nearing the end of its shelf life.

The eye-popping June 2022 CPI results may well represent the peak for inflation, both given fundamental trends – i.e., potential energy price relief – and the “Demand Destruction” that the Federal Reserve has hoped to induce in non-essential spending categories, such as Recreation (+4.6% year-over-year in June 2022, seasonally adjusted). But even if CPI inflation slows to its weakest result over the past year (+0.3%, August 2021) for the remainder of 2022, December’s result will still see consumer prices up by 8.4% year-over-year.

The Federal Reserve’s commitment to taming inflation has all the fuel it needs to remain steadfast. PNC is forecasting a 75 basis point hike out of their July 2022 meeting, followed by another 50 basis points in September 2022. It will take this resolve from the Fed, cooperation from consumer spending trends where possible, and a lack of new inflation-inducing shocks to achieve the goal of slowing inflation in the coming months.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.