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Used Car Prices Buoy CPI

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The Consumer Price Index (CPI) rose 0.2% in September from October and edged up 1.4% on a year-over-year basis. The cost of food at grocery stores flattened after surging earlier in the pandemic, but remained more than 4% ahead of levels one year ago; prices for food away from home picked up yet again. Energy prices continued to rise during September, with a sharp increase in natural gas prices more than offsetting a slight drop in prices at the gas pump.

The core CPI, which excludes food and energy prices, also rose 0.2% during the month and held at the 1.7% year-over-year pace hit in August. A sharp 6.7% monthly jump in used car prices more than accounted for the rise in core CPI. That comes on the heels of a 5.4% increase in used car prices in August. Used car prices are now more than 10% above the pace of a year ago. That is the fastest annual increase since September 2010 after the cash-for-clunkers program came to an end; it was designed to stimulate new car sales during the Great Recession. Used car demand has surged recently in response to everything from the shift away from mass transit to flooding due to storms and fires, which destroyed a lot of property in the West over the last two months.

Other prices were flat to down on a month-to-month basis and represented a slowdown in inflation on a year-over-year basis. Transportation prices fell at the fastest rates; airfares are still cheap. The summer travel season was much weaker this year.

The year-over-year declines in travel could deepen as we get closer to the Thanksgiving holiday, which is usually one of the busiest times of year for air travel. Another round of layoffs in the travel and tourism industry went into effect in October and will be reflected in the October employment report; that survey is being taken this week. Congress has so far failed to pass any kind of an additional aid deal. Even stand-alone bills for the airlines were sidelined by gridlock in Congress in recent weeks.

The index for shelter continued to decelerate in September. Rent and owner’s equivalent rent reported by homeowners both came close to flat in September. That was despite a surge in home values in suburban markets. Rent concessions, in what had been some of the hottest urban cores on the coasts, have become much more common.

Bottom Line
Inflation is showing signs of decelerating again after a spike due mostly to food prices earlier in the pandemic. This is what the Federal Reserve feared and one of many reasons officials have continued to advocate for more aid to households, states and firms. Sadly, prices for food at home and at restaurants remain elevated relative to a year ago, which is exacerbating the pain for the millions who have seen unemployment aid lapse. The only silver lining is that stores are stocking up on cleaning supplies and toilet paper as the pace of infections is rising. I actually found Lysol last week for the first time since March.

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