WASHINGTON: US consumer prices rose solidly in August, with the cost of used cars and trucks accelerating by the most in more than 51 years likely as Americans shunned public transportation because of fears of contracting Covid-19.
The report from the Labor Department yesterday also showed a firming in underlying inflation last month, putting fears of deflation to rest. Deflation, a decline in the general price level, is harmful during a recession as consumers and businesses may delay purchases in anticipation of lower prices.
Still, stirring inflation is unlikely to discourage the Federal Reserve from pumping more money into the economy to aid the recovery from the Covid-19 recession amid considerable labour market slack. The US central bank in August rewrote its framework, putting new emphasis on the labour market and less on worries about too-high inflation.
“Consumer prices are rebounding from the pandemic shock, but as supply shortages are resolved, upward price increases should moderate,” said Kathy Bostjancic, chief US financial economist at Oxford Economics in New York. “The Fed’s new policy objectives underscore that monetary policy will remain very accommodative for a considerable time.”
The consumer price index increased 0.4 per cent last month, also lifted by gains in the costs of gasoline, recreation and household furnishings and operations. The CPI advanced 0.6pc in both June and July after falling in the prior three months as business closures to slow the spread of the coronavirus depressed demand.
In the 12 months through August, the CPI increased 1.3pc after gaining 1.0pc in the 12 months through July.
Economists polled by Reuters had forecast the CPI would rise 0.3pc in August and climb 1.2pc on a year-on-year basis.
Excluding the volatile food and energy components, the CPI gained 0.4pc last month after surging 0.6pc in July, the largest gain since January 1991. A 5.4pc jump in prices of used cars and trucks, the largest gain since March 1969, accounted for more than 40pc of the rise in the so-called core CPI last month.
In the 12 months through August, the core CPI climbed 1.7pc after rising 1.6pc in July.
Though the Fed’s embrace of what it calls “flexible average inflation targeting” is still shy of many details, in theory it could see policymakers tolerate price increases above its 2pc target for a period of perhaps several years to offset years in which inflation was lodged below its goal.
Stocks on Wall Street were trading higher after pulling back in the previous session. The dollar was slightly lower against a basket of currencies. Prices of US Treasuries rose.
Though food prices rocketed at the height of the Covid-19 business shutdowns, inflation stayed muted as the pandemic undercut demand for services like healthcare, air travel, dining out and hotel accommodation. High unemployment is also keeping a lid on price pressures despite the Fed’s extraordinarily easy monetary policy and record fiscal stimulus from the government.
Nearly 30 million people are on unemployment benefits.
Last month, gasoline prices rose 2.0pc after increasing 5.6pc in July. Food prices edged up 0.1pc after declining 0.4pc in July, the first decrease since April 2019. The cost of food consumed at home fell 0.1pc after dropping 1.1pc in the prior month.
Consumers paid less for beef as its price dropped 4.4pc. But prices of dairy products rose 1.5pc. The cost of food consumed away from home rose again.
Housing inflation cooled further amid forbearance agreements between tenants and landlords and a government moratorium on evictions. Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, nudged up 0.1pc. That followed a 0.2pc gain in July.
The cost of recreation rebounded 0.7pc after falling in June and July. Prices for household furnishings and operations rose 0.9pc, the largest increase since February 1991, likely due to more people working from home. Apparel prices rose 0.6pc, advancing for a third straight month. The cost of motor vehicle insurance rose 0.5pc and prices of airline fares increased 1.2pc.
Healthcare costs gained 0.1pc after rising 0.4pc in July. But prescription medication prices fell 0.2pc. New vehicle prices were unchanged. Education costs fell 0.3pc, the first decline since the series started in 1993. Many schools and universities have shifted to online classes because of the pandemic.