U.S. Inflation Quickened in August on Sharp Gain in Used Cars

(Bloomberg) — U.S. inflation quickened in August, driven by the sharpest monthly gain in used-vehicle costs since 1969 and consistent with a gradual pickup in prices as the economy recovers from the pandemic-induced downturn.


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The consumer price index rose 1.3% from a year ago after a 1% annual increase in July, Labor Department figures showed Friday. The CPI climbed 0.4% from the prior month following a 0.6% advance. The median projections in a Bloomberg survey of economists called for a 1.2% year-over-year rise and a 0.3% gain on a monthly basis.

Excluding volatile food and fuel costs, the so-called core CPI — viewed by policy makers as a more reliable gauge of price trends — also increased 0.4% from the prior month after a 0.6% jump in July that was the largest in almost three decades. A 5.4% surge in the cost of used cars and trucks accounted for more than 40% of the gain in the core index. On an annual basis, core inflation measured 1.7% following 1.6% in July.

a screenshot of a cell phone: Biggest jump since 1969 accounted for 40% of the August rise in core CPI

© Bloomberg
Biggest jump since 1969 accounted for 40% of the August rise in core CPI

The gain in consumer prices reflects the steady advance in demand for goods and services since the pandemic-induced lockdowns earlier this year, suggesting inflation is gradually returning to the pre-crisis pace. In the early months of the pandemic, prices for things such as airfare and hotels collapsed as Americans stayed home. But as the economy has reopened, demand has gradually picked up once more.

S&P 500 futures remained higher, the yield on the 10-year Treasury note was little changed and the dollar remained lower after the report.

In addition to used autos, the costs of motor vehicle insurance, apparel and airfares also rose from a month earlier. Education, which showed the first drop in records back to 1993, was among the categories that declined. College tuition and fees fell 0.7%, the most since 1978, as many schools transitioned to remote learning because of the pandemic.

Even with the recent gains in consumer prices, Federal Reserve policy makers have seen little threat of inflation and expect to hold interest rates near zero for the foreseeable future. Additionally, Fed Chair Jerome Powell said late last month that the central bank will now be seeking an average inflation target, implying price pressures can overshoot after periods of weakness.

Consumers paid 0.2% more for non-energy services in August than a month earlier, while goods prices minus food and fuel increased 1%.

Prices for clothing rose 0.6% after a 1.1% jump in July, while the cost of new vehicles was unchanged.

Airfares climbed another 1.2% after posting the biggest monthly gain in 21 years in the prior month, though prices remained 23.2% below year-earlier levels with passenger counts still depressed.

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