Used cars drive US consumer prices higher in August

[WASHINGTON] US consumer prices rose solidly in August, with the cost of used cars and trucks increasing 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 on Friday also showed a firming in underlying inflation pressures last month. But this will have no impact on monetary policy as the Federal Reserve last month rewrote its framework, putting new emphasis on the labour market and less on worries about too-high inflation.

The US central bank's embrace of what it calls "flexible average inflation targeting" is still shy of many details, but in theory could see policymakers tolerate price increases above its 2 per cent target for a period of perhaps several years to offset years in which inflation was lodged below its goal.

Policymakers have expressed a range of ideas about how this might work in practice, but agree the aim is to let prices rise fast enough that households and businesses take their inflation target seriously.

The consumer price index (CPI) increased 0.4 per cent last month, also lifted by gains in the costs of petrol, recreation and household furnishings and operations. The CPI advanced 0.6 per cent 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 1.3 per cent after gaining 1 per cent in the 12 months through July.

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Economists polled by Reuters had forecast the CPI would rise 0.3 per cent in August and climb 1.2 per cent on a year-on-year basis.

Excluding the volatile food and energy components, the CPI gained 0.4 per cent last month after surging 0.6 per cent in July, the largest gain since January 1991. A 5.4 per cent jump in prices of used cars and trucks, the largest gain since March 1969, accounted for more than 40 per cent of the rise in the so-called core CPI last month.

In the 12 months through August, the so-called core CPI climbed 1.7 per cent after rising 1.6 per cent in July.

The CPI report followed news on Thursday that producer prices advanced further in August, driven by strong gains in the in the cost of services such as portfolio management fees and healthcare.

US stocks opened higher after pulling back in the previous session. The dollar was slightly lower against a basket of currencies. Prices of US Treasuries rose.

BROAD PRICES INCREASES

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. The Fed's preferred inflation measure, the core personal consumption expenditures (PCE) price index, rose 1.3 per cent in the 12 months through July. August's core PCE price index data is scheduled to be released at the end of this month.

Petrol prices rose 2 per cent in August after increasing 5.6 per cent in July. Food prices edged up 0.1 per cent after declining 0.4 per cent in July, the first decrease since April 2019. The cost of food consumed at home fell 0.1 per cent after dropping 1.1 per cent in the prior month.

Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, nudged up 0.1 per cent. That followed a 0.2 per cent gain in July. Many tenants have entered into forbearance agreements with landlords, while the government has temporarily halted evictions. The cost of recreation increased 0.7 per cent after falling in June and July. Prices for household furnishings and operations rose 0.9 per cent, the largest increase since February 1991, with the costs of furniture and bedding advancing 1.6 per cent and appliances rising 2 per cent. Apparel prices rose 0.6 per cent, advancing for a third straight month. The cost of motor vehicle insurance rose 0.5 per cent and prices of airline fares increased 1.2 per cent.

REUTERS