07/16/2021 | Press release | Distributed by Public on 07/16/2021 09:45
Retail sales and food services increased in June as growth in other categories outweighed the decline in motor vehicles, a sector continuing to be plagued by semiconductor shortages. While a downward revision to May sales offsets some of the June gain, overall, the report was in line with our Q2 personal consumption forecast.
Inflation measures continued to climb in June. The eye-popping 0.9 percent CPI growth in June was somewhat higher than we had expected, but it is tempered by the fact that likely temporary factors related to new/used auto prices accounted for nearly half of the gain, hence a related 6.6 percent decline in June production of motor vehicles and parts. The increase in prices for producers broadly will likely continue until supply disruptions pass. However, once resolved, many of the current drivers of inflation, such as the automotive sector, will likely see sharp deceleration if not outright price declines. A similar dynamic may occur in other industries experiencing a surge in consumer demand, such as airlines. Therefore, we continue to believe that the current acceleration in inflation is mostly, though not entirely, transitory. The stronger-than-expected CPI print will lead to a bump upward in our near-term annual inflation forecast, but we anticipate minimal impact to our current year-end inflation forecast.
Over the longer run, the increase in OER in the June CPI report supports our expectation that growth in housing costs will increasingly take the place of some of the fading transitory inflation drivers. This is a key driver of our above-consensus outlook for overall inflation over the next couple of years. Furthermore, we believe wage growth will continue to put longer-term pressure on inflation, as the NFIB survey showed a significant share of firms with jobs they are unable to fill, leading to a record share of firms raising worker compensation. The highest share of firms since 1981 also reported raising their prices in June. The possibility of a wage-price spiral developing is a risk moving forward. However, we continue to believe that labor market tightness will ease as school re-openings, waning COVID concerns, and the expiration of extended unemployment benefits occur, leading to people currently unable or unwilling to re-enter the workforce to do so.
Ricky Goyette, Ryan Gavin, and Nathaniel Drake
Economic and Strategic Research Group
July 16, 2021
Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.