Biggest spike in used-vehicle prices in 51 years nudges U.S. inflation higher in September

Consumer prices rose sharply after the economy reopened, but the coronavirus pandemic has kept a lid on inflation more broadly.

Christian Petersen/Getty Images

The numbers: Consumer inflation rose in September at the slowest pace in four months, suggesting the shock from the coronavirus pandemic on the price of goods and services is starting to fade. Most of the increase last month was tied to the biggest jump in the cost of used cars and trucks in 51 years.

The consumer price index rose 0.2% last month, the Labor Department said Tuesday, matching the MarketWatch forecast. It was the smallest increase since since May.

Consumer inflation sank early in the coronavirus pandemic, then snapped back after the economy reopened, but it might be settling into a more stable pattern.

The cost of living has risen just 1.4% in the past year, up a tick from the prior month. The broad rate of inflation is still quite low with the coronavirus continuing to depress economies around the world.

By contrast, inflation was running at a much higher 2.5% rate at the start of 2020.

What happened: The cost of used cars and trucks jumped 6.7% in September, posting the biggest increase since 1969.

Used-vehicles prices surged over the summer, probably because so few people were using public transportation while the coronavirus was spreading.

The cost of natural gas also shot up 4.2%, pushing overall energy prices higher.

Yet the rise in the cost of most other goods and services were muted.

Gasoline prices, for example, edged up just 0.1%, the smallest increase since the economy reopened in May. Rents also rose just 0.1% and the cost of medical care was unchanged.

Grocery prices, meanwhile, declined for the third straight month after a big runup in the first several months of the pandemic.

The cost of airline tickets, clothing, home furnishings and auto insurance also fell.

Another closely watched measure of inflation that strips out food and energy, known as the core rate, also rose 0.2% last month. The yearly increase in core CPI was unchanged at 1.7%.

Big picture: Inflation rebounded more rapidly than expected during the summer after slumping when the pandemic struck in March. Yet prices are unlikely to rise much faster until the economy gets stronger and demand picks up. Many companies have had to cut prices to entice customers to spend in a time of such high economic uncertainty.

What they are saying? “Inflation plunged, then partially rebounded, with the collapse of demand in the first half of this year and the rapid, partial rebound in the third quarter,” wrote chief economist Chris Low of FHN Financial in a note to clients. “From here … the ongoing elevated unemployment rate, reflecting elevated excess productive capacity globally, will keep inflation down in the next few years.”

Market reaction: The Dow Jones industrial average DJIA and S&P 500 SPX fell slightly in Tuesday trades.

Source link