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Spike in Used Vehicle Sales Drives Higher U.S. Consumer Prices in August

  • U.S. consumer price index rises 0.4 percent in August
  • Higher demand for used cars and trucks accounts for much of the increase
  • Inflationary pressures rise soon after Fed policy treating rising prices with more leniency

The United States consumer price index, which measures the cost of living for Americans, rose 0.4 percent in August. Over the previous 12 months, consumer prices rose 1.3 percent.

Higher demand for used vehicles proved to be the primary factor in the change, with the seasonally adjusted price of pre-owned cars and trucks rising 5.4 percent compared to July. The COVID-19 pandemic drove several trends leading to this change, including a disruption in new vehicle production, drivers seeking less expensive options due to economic uncertainty, and fears about using public transportation.

Prices also increased for goods and services such as gasoline, home furnishings, airfare, and recreation. Yet many prices were lower than they were a year ago, and consumer prices remained largely unchanged compared to the beginning of the year. Companies have largely been reluctant to increase prices as the unemployment rate remains elevated and consumer spending remains below pre-pandemic levels.

The trend has eased worries about deflation, which can be detrimental during a weakened economy as consumers and businesses put off purchases in hopes of seeing lower prices. While the index signals an underlying inflationary pressure, the Federal Reserve recently indicated that it is willing to allow higher inflation in order to promote a healthier labor market. This move has prompted some criticism that more inflation will be harmful to households that are already struggling as companies reduce hours and wages or make temporary layoffs permanent.

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