US inflation came out of the boil as prices rose slowly in August

WASHINGTON, Sept. 14 (Reuters) – Underlying U.S. consumer prices rose at a slower pace in six months in August as used motor vehicle prices fell, suggesting that inflation has peaked, although it could remain high for some time amid persistent supply constraints.

The broad slowdown in price pressures reported Tuesday by the Department of Labor is in line with Federal Reserve Chairman Jerome Powell’s long-term belief that high inflation is transitory. Still, economists warned it was too early to celebrate and expected the U.S. central bank to present plans in November to begin downsizing its massive monthly bond-buying program.

“Inflation remains uneasily strong, even if it doesn’t explode like it did earlier this year,” said James McCann, chief economist at Aberdeen Standard Investments in Boston. “If we continue to see further reductions in inflation over the next six months, this should ease the pressure on the Fed to continue to rapidly reduce the rise in interest rates.”

The consumer price index, excluding volatile food and energy components, rose 0.1% last month. This was the smallest gain since February and followed a 0.3% increase in July.

The so-called basic CPI was slowed by a 1.5% drop in the prices of used cars and trucks, which ended with five consecutive monthly increases. The solid rises in the prices of used cars and trucks, as well as the services of the industries most affected by the COVID-19 pandemic, were the main drivers of a warming of inflation at the beginning of the year.

Airline fares fell 9.1% in August, probably as a resurgence of infections, driven by the Delta variant of the coronavirus, which dampened demand for air travel. There were also declines in motor vehicle rental and insurance.

In the twelve months to August, the core CPI rose 4.0% after advancing 4.3% in the twelve months to July. Economists surveyed by Reuters had predicted that the core CPI would gain 0.3% during the month and increase by 4.2% year-on-year.

Wall Street shares were trading lower. The dollar (.DXY) fell against a basket of currencies. US Treasury prices rose.

SUPPLY CONSTRUCTIONS REMAIN

In addition to the increase in the prices of used cars and trucks that seems to have followed its course, accommodation prices in hotels and motels are now above the pre-pandemic level, suggesting moderate advances. Accommodation prices in hotels and motels fell 3.3% after soaring 6.8% in July. Some of the price drops were probably due to growing coronavirus infections.

But bottlenecks remain in the supply chain and the labor market is tightening, raising wages. There was a record 10.9 million jobs at the end of July, forcing companies to raise wages as they compete for workers.

Amazon.com (AMZN.O) on Tuesday raised its average starting salary to $ 18 an hour. Read more

Housing shortages are record-breaking house prices and rents are rising, as COVID-19 vaccines allow companies to remove workers to offices and get Americans back to cities after ‘an exodus fueled by a pandemic to areas of lower density. These factors could help keep annual inflation higher.

The equivalent rent of owners of the main residence, which is what a landlord would receive from renting a house, increased 0.3% in August, increasing the same margin for the fourth consecutive month.

“The biggest upside risk to inflation in the next six months comes from the possible transmission of higher home prices to the CPI shelter component,” said Bill Adams, senior economist at PNC Financial in Pittsburgh, Pennsylvania. .

Furniture and bedding prices rose 2.3%, while home appliances accelerated 1.5%, underscoring supply chain constraints. Prices for new motor vehicles rose 1.2%, marking the fourth consecutive month of gains of more than 1%. The global shortage of semiconductors, exacerbated by the spread of the Delta variant in East Asia, has forced carmakers to reduce production.

Consumers also paid more for clothes. The cost of health care increased meekly by 0.2%, as a sharp rise in the prices of hospital services was offset by a decrease in prescription drugs. The cost of doctor visits did not change.

The government reported last week that producer prices rose sharply in August, with the PPI making its biggest annual gain in nearly 11 years. Read more

Some economists expect Fed officials to update their inflation estimates when the U.S. central bank releases its summary of economic projections at the end of the Sept. 21-22 policy meeting. The Fed’s preferred measure of inflation for its flexible 2% target, the basic personal consumer spending price index, rose 3.6% in the twelve months to July, equaling the June gain. August data will be released later this month.

The global CPI rose 0.3% in August, the smallest increase since January, after gaining 0.5% in July. The food index rose 0.4%, slowing after two consecutive months of strong gains as the cost of dairy products fell.

Outside food prices also moderated. Gasoline prices rose 2.8% after rising 2.4% in July.

During the twelve months to August, the CPI rose 5.3% after soaring 5.4% year-on-year in July.

“Even with a slowdown in monthly CPI earnings, large year-over-year increases will persist until well into 2022,” said Chris Low, chief economist at FHN Financial in New York.

“The slowdown in reopening-sensitive sectors is further proof of the transient history of inflation, but steady increases elsewhere show that inflation should be maintained even after those sectors adjust.”

Report by Lucia Mutikani, edited by Chizu Nomiyama, Paul Simao and Andrea Ricci

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