Although core CPI inflation remains muted at 1.6% in July, the surge in prices last month specifically could be the start of a more significant rebound, as the added costs and ongoing supply constraints stemming
from the pandemic and physical distancing offset the disinflationary impact from weak demand. The prices of the goods and services that fell most sharply at the start of the pandemic – like air fares, hotel room rates
and motor vehicle insurance rates – are now rebounding, while low inventories explain the surge in motor vehicle prices. With unit labour costs up sharply in the second quarter, money supply soaring, and inflation
expectations unusually resilient given the extent of the economic downturn, there are plenty of other reasons to suspect that the balance of risks for inflation lie predominantly to the upside.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services