• Overall consumer prices rose by 0.9% in June.

• Housing-related products increased by a more moderate 0.4%.

• Appliances up a substantial 13.7% annually.

By Manuel Gutierrez, Consulting Economist to NKBA

The Consumer Price Index jumped nearly a full percentage point in June, the largest increase in 13 years and a further sign of growing inflation. The good news for the housing markets is that despite the huge price increases in some products — with those of lumber for new housing leading the way — overall increases for housing rose a relatively modest 0.4% for the month, less than half than the total CPI hike of 0.9%.

“Consumer prices are showing the largest increases in 13 years — a sign of looming inflation.”

The housing category comprises a variety of products and services purchased for the home, including “shelter” costs that involve rental and homeowner expenses. It also includes other items such as fuel and electricity used in the home, household furnishings and more that are purchased by consumers for their homes.

Unfortunately, the CPI isolates only a few products that are of major interest to NKBA members. Although the index itself captures thousands of products purchased by consumers, many of them represent only a small percentage of typical household budgets and are not specifically identified in the published data.

Four of the categories related to K&B that are isolated in the CPI are shown in Figure 1. The top half presents two related graphs: Total Appliances show an annual price increase of 5.8%, which tracks somewhat above the overall CPI gain of 5.3%. However, Major Appliances, which includes refrigerators, dishwashers and similar household products, rose by 13.7% over the last year, nearly three times the total CPI increase.

Other Appliances, including small appliances such as coffee makers and blenders (not shown in Figure 1), increased by a much more modest 1.7% over the last 12 months.

However, prices for the other two categories displayed in Figure 1, Windows and Flooring, follow a very different path.

Prices for Windows have actually fallen over the last seven months, as shown in the bottom left panel. Window prices in June were down 5.3% compared to last year. In fact, on a monthly basis, Windows prices have been regularly showing red.

Household Flooring tells a totally opposite story. After falling every month since virtually the end of 2019, prices of Flooring products unexpectedly rose in each of May and June this year. The latest increase is a substantial 5.3% higher, caused in large part by increases in lumber.

On a macro level, overall prices rose by a significantly higher 0.9% in June. Figure 2 shows the steadily rising trend in prices since October of last year. That was the last time the CPI remained nearly unchanged from the prior month, increasing a minuscule 0.1%.

The 0.9% June price hike brings the annual increase over the last year to 5.3%, (right panel, Figure 2). It is also clearly evident in the annual changes chart that the pace of inflation has been accelerating monthly since the end of last year.

Increases of this magnitude like have not been seen in 13 years. In fact, as seen in Figure 3, the last time prices rose by 5.3% was in August 2008.

Note that the 2008 price increase was only a momentary phenomenon, since the economic recession drove prices down rapidly within three months.

Besides that blip, one would have to go back another 20 years to see increases equal to or greater than 5.3%.

The big question remains as to whether the last few months of increases portend a return to an inflationary era, or if this is simply a transitory situation that will be resolved once bottlenecks in manufacturing and retail can be worked through.

Inflation in June was driven by a few products, led by New Vehicles, which were up 2% for the month, but 5.3% for the year —matching the overall CPI change (Figure 4).

Windows & Flooring combined were up 1.8% in June. As with the annual figures cited above, flooring rose sharply while the price of windows actually fell.

Transportation Services rose 1.5% in June and Energy overall was up 1.3%.

Total Housing edged up by a modest 0.4% for the month and a higher 3.1% for the year, still below the overall CPI change.

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