The CPI report undershot estimates in August, with gains of 0.3% for the headline and 0.1% for the core, leaving more moderate gains over the last two months after four months of outsized gains, suggesting we may be turning the corner on supply chain disruptions. The August gains rounded from respective increases of 0.274% and 0.102%, and the core gain is the smallest since January on a three-digit basis.
The powerful updraft in vehicle prices and airfares plateaued in July and have fallen now in August, after a massive three-month climb that fueled the big headline gains. We’re seeing persistent gains in most of the remaining components.
- Used car prices fell by -1.5% in August, after a 0.2% July rise, and massive increases over the prior three months of 10.5% in June, 7.3% in May, and 10.0% in April.
- New car prices rose by 1.2% in August, after solid gains of 1.7% in July, 2.0% in June, 1.6% in May, and 0.5% in April.
- Airfare prices fell -9.1% in August and -0.1% in July, after outsized gains of 2.7% in June, 7.0% in May, and 10.2% in April.
- For additional price restraint, tobacco prices rose by just 0.1%, after gains of 0.5% in July and 0.6% in June. These prices haven’t fallen since May of 2020.
- Beyond the price relief from cars, planes, and tobacco, prices more generally continue to post solid gains.
Consumers continue to see increases:
- CPI was lifted by energy prices over the three months through August, after restraint in April and May. Headline energy prices rose 2.0% in August, 1.6% in July, and 1.5% in June, after a flat May figure. Gasoline prices rose by 2.8% in August, 2.4% in July, and 2.5% in June, after falling -0.7% in May and -1.4% in April.
- Food prices rose 0.4%, after gains of 0.7% in July, 0.8% in June, and 0.4% in both April and May.
- Apparel prices rose 0.4% in August after a flat July reading, and gains of 0.7% in June, 1.2% in May, and 0.3% in April.
- Owners’ equivalent rent rose by 0.3% for a fourth consecutive month in July, versus 0.2% gains in both March and April.
- Medical care service prices rose 0.3%, after a 0.3% July rise, a flat June figure, a -0.1% May drop, a flat April figure, and a 0.1% March rise.
The y/y CPI headline metric slipped to 5.3% from 5.4% in both June and July, 5.0% in May, and 4.2% in April, leaving the five largest gains since 2008. The y/y core CPI measure fell to 4.0% from 4.3% in July, 4.5% in June, and 3.8% in May, leaving the four largest gains since 1991 and 1992 respectively.
Bottom Line
On a moving average basis, CPI headline gains are still trending higher after the sharp pull-back in Q2 of 2020. We have 6-month average price gains of 0.615% for the headline and 0.550% for the core, versus respective 12-month average gains of 0.424% and 0.326%.
Consumer prices have revealed a massive 2021 lift from huge PPI and trade price gains that have worked their way to consumers, alongside capacity constraints and “base effects” that lifted the y/y measures starting in Q2. We’re seeing continued price strength across most components, even as the outsized supply-chain-related gains may finally be cooling.
We expect a drop-back in y/y gains to the still-elevated 4.3%-5.2% area by December. We have yet to see if this pull-back will be fast enough to prevent a lift in inflation expectations into 2022, which will likely determine if the 2021 rise in the inflation metrics is “transitory.” We think that rising inflation is here to stay for some time, especially if Congress pushes through the massive $3.5 trillion spending bill.
