Skip to main content
Canada’s most-awarded newsroom for a reason
Enjoy unlimited digital access
$1.99
per week
for 24 weeks
Canada’s most-awarded newsroom for a reason
$1.99
per week
for 24 weeks
// //

Certified pre-owned vehicles at an auto dealership in Miami, Fla., on Jan. 17, 2017.

Alan Diaz/The Associated Press

Underlying U.S. consumer prices increased at their slowest pace in six months in August as used motor vehicle prices tumbled, suggesting inflation had probably peaked, although it could remain high for a while amid persistent supply constraints.

The broad slowdown in price pressures reported by the Labour Department on Tuesday aligns with Federal Reserve chair Jerome Powell’s long-held belief that high inflation is transitory. Still, economists cautioned it was too early to celebrate and expected the U.S. central bank to lay out plans in November to start scaling back its massive monthly bond-buying program.

“Inflation remains troublingly strong, even if it is not exploding like it did earlier in the year,” said James McCann, deputy chief economist at Aberdeen Standard Investments in Boston. “If we continue to see further step-downs in inflation over the next six months, that should ease the pressure on the Fed to quickly follow tapering with interest rate rises.”

Story continues below advertisement

The consumer price index excluding the volatile food and energy components edged up 0.1 per cent last month. That was the smallest gain since February and followed a 0.3-per-cent rise in July.

The core CPI was held back by a 1.5-per-cent decline in prices for used cars and trucks, which ended five straight monthly increases. Robust increases in prices of used cars and trucks, as well as services in industries worst affected by the COVID-19 pandemic, were the key drivers behind a heating up of inflation at the start of the year.

Airline fares plunged 9.1 per cent in August, likely as a resurgence in infections, driven by the Delta variant of the coronavirus, sapped demand for air travel.

Economists polled by Reuters had forecast the core CPI would gain 0.3 per cent. In the 12 months through August, the core CPI increased 4 per cent after advancing 4.3 per cent in the 12 months through July.

U.S. stocks opened higher. The dollar fell against a basket of currencies. U.S. Treasury prices were higher.

SUPPLY CONSTRAINTS REMAIN

In addition to the price surge for used cars and trucks appearing to have run its course, hotel and motel accommodation prices are now above the prepandemic level, suggesting moderate gains ahead. But bottlenecks in the supply chain remain and the labour market is tightening, pushing up wages.

A shortage of homes is driving record house price gains and rents are going up as COVID-19 vaccinations allow companies to recall workers to offices, pulling Americans back to cities after a pandemic-fuelled exodus to lower-density areas. These factors could contribute to keeping annual inflation higher.

Story continues below advertisement

“If there is any relation between the real world and government data, we may start to see the enormous increase in home prices and rents filter into the CPI,” said David Donabedian, chief investment officer of CIBC Private Wealth US in Baltimore.

The government reported last week that producer prices increased solidly in August, with the PPI posting its largest annual gain in nearly 11 years.

The overall CPI rose 0.3 per cent in August, the smallest increase since January, after gaining 0.5 per cent in July. The food index increased 0.4 per cent, slowing down after two straight months of hefty gains. Gasoline prices rose 2.8 per cent after increasing 2.4 per cent in July.

In the 12 months through August, the CPI increased 5.3 per cent after soaring 5.4 per cent on a year-on-year basis in July.

The Fed’s preferred inflation measure for its flexible 2-per-cent target, the core personal consumption expenditures price index, increased 3.6 per cent in the 12 months through July, matching the gain in June. August’s data will be published later this month.

“Recently broadening wage pressures across sectors could lead to more broad-based increases in services prices,” said Veronica Clark, an economist at Citigroup in New York.

Story continues below advertisement

“Strong increases in ‘transitory’ price components over the last few months will keep the annual pace of inflation elevated for some time, implying that it will be more important to assess the details of inflation data to gauge the persistence of inflationary pressures.”

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies