Here's What Drove Inflation, Social Security COLA Estimate Higher in June

A surge in inflation in June pushed an advocacy group’s projection for the 2022 cost-of-living adjustment for Social Security to 6.1%. If that figure, adjusted monthly based on the Consumer Price Index, holds until the COLA is announced in October, it would be the biggest COLA since 1983.

The estimate is based on the 0.9% increase in the core CPI announced Tuesday by the Bureau of Labor Statistics. The CPI for all urban consumers in June rose 5.4% over the past 12 months. But what was behind the surge?

Used cars, food and gasoline, says the BLS.

“The index for used cars and trucks continued to rise sharply, increasing 10.5% in June. This increase accounted for more than one-third of the seasonally adjusted all items increase,” the BLS stated. “The food index increased 0.8% in June, a larger increase than the 0.4% increase reported for May. The energy index increased 1.5% in June, with the gasoline index rising 2.5 % over the month.”

The core index, which excludes food and energy prices, rose 0.9% in June after rising 0.7% in May.

Also part of the rise in prices were airline fares and apparel. Interestingly, “the index for medical care and the index for household furnishings and operations were among the few major component indexes which decreased in June,” the BLS states.

Airline fares were up 2.6% (after an increase of 10.2% the previous month). Year over year, used cars increased 45.2% and airfares increased 24.6%. Although gasoline prices were up 2.2% month over month, from a year ago they are up 45.1%, according to the BLS.

Federal Reserve Board Chairman Jerome Powell has stated that increased inflation is “transitory” due to last year’s COVID-19 lockdown and the reopening of the economy.

“Inflation surprised substantially to the upside in June but, once again, owing to outsized increases in prices in a few categories,” Michelle Meyer, head of U.S. economics at Bank of America, told Bloomberg. “This reinforces the idea of transitory inflation.”

But some did not agree, noting that bond market data was putting more pressure on the Fed. The Treasury yield curve flattened as the above-forecast reading emboldened traders to bet that the central bank will tighten policy in early 2023, according to Bloomberg.

“We are told the story [from the Fed that this inflation] is transitory but the increases are going faster and for longer,” John Ryding, chief economic advisor at Brean Capital, said on Bloomberg Television. “We just had a monthly increase that was about double what was expected.”