May consumer prices overall rise by 0.6%, continuing inflation concerns.
By Manuel Gutierrez, Consulting Economist to NKBA
Not surprisingly, price inflation varies among products within our industry. Anyone in kitchen & bath is aware of the sharp price increases for lumber, but the story isn’t as consistent for related products. Figure 1 displays three categories for which the Bureau of Labor Statistics collects price data.
Appliances prices have been rising since May of last year, mimicking to some degree the overall inflation rate. In May, prices for this category were 6.9% higher than they were for the same month a year ago. Note that prices have been consistently rising at 6% or above for the last seven months.
A different picture emerges for the two other product categories within our industry. Flooring prices have been consistently falling for at least a year, but jumped in May, with prices 2% higher than a year ago.
For Windows, prices have also fallen for the last six months, but continue to do so, with a 4.6% drop in May.
Overall, consumer prices have been rising each month since last September, with the past few months seeing an acceleration in that trend. Although May’s increase in the Consumer Price Index (CPI) of 0.6% was lower than the previous month’s, shown in the left panel of Figure 2, compared to last year prices for the month were 4.9% higher and above April’s annual change of 4.2%.
Price of Flooring jumps 2% in May after a year of price drops.
Price increases for the overall CPI, or for the more restrictive Core CPI, have risen sharply since at least the beginning of the year, with the core components gaining 3.8% over the last twelve months.
Two key areas of government have largely contributed to the current general situation. One is the Federal government, which has drastically increased spending since the pandemic hit.
The other is the Federal Reserve Bank (FED), which significantly expanded the money supply. The money supply had been just under $4 trillion at the beginning of last year and now stands at nearly $19 trillion.
Figure 3 highlights this dramatic increase which is behind the increase in prices. The old saw of too much money chasing too few goods appears to apply in the current situation.
Previous large increases in the money supply, like the one in the first decade of this century did not result in commensurate price increases because we were able to import significantly lower priced products from China, which joined the World Trade Organization in 2001. Those imports served as a safety valve for the money supply expansion.
In a reversal of that situation, product supply issues are currently contributing to inflation in prices too.
Figure 4 displays both the monthly price increases, in the left pane, and the annual ones, right pane, for some of the major categories.
Overall Energy prices, which include gasoline and electricity, did not change in May, although they remain nearly 28% above last year’s levels. While electricity is 4.2% higher than a year ago, gasoline (not shown in the chart) is a staggering 56% higher. These increases are likely to continue for the foreseeable future. The administration’s decision to stop or deter future coal, gas and oil exploration will have the effect of making these products more costly going forward.
The next four highest price inflationary categories are driven by increases in demand, which directly result from the loosening of restrictions on individuals and businesses. Consumers now have more freedom to travel and feel safer to do so, and many are
returning to work in offices, which contributes to a rise in both Transportation and Apparel.
Transportation Services, including purchases of both new and used autos, as well as gasoline and air travel, is up 1.5% for the month and a sharp 11.3% higher than a year ago.
Of note, new autos and trucks are up 3.3% from last year, but used vehicles are a remarkable 29.7% higher.
Charts:
