United States Retail Inflation – August 2021

Bijetri Roy, Managing Director & Chief Strategy Officer, InsPIRE

The US consumer price inflation has eased marginally to 5.3% in August 2021, compared to 5.4% in the previous month, as per the Bureau of Labor Statistics (Figure 1). The cooling of inflationary pressures is associated with the economic reopening from Covid-19 lockdowns, while still remaining near a 13-year high. Month-over-month price increase, too slowed, with an increase of 0.3% from July.

However, this is much lower than the 0.9% increase reported between May and June and a drop-off from the 0.5% rise from June to July. While inflation remained benign during January to March, it increased sharply to 5% in April and continued to remain elevated at 5% and above during April to August 2021 (Figure 1).

Core inflation, which excludes volatile items such as food and energy, also declined. The monthly figure for August fell to 0.1%, which was the smallest increase since February 2021. On a year-over-year basis, core inflation declined to 4% from 4.3% in July.

Inflation in the US during the current year has been mainly influenced by price rises in sectors most sensitive to supply bottlenecks and other pandemic-related disruptions. The inflation data for July revealed the initial signs of the abating of price increases, especially in respect of used car and truck prices and travel expenses, which have been the major drivers of inflation.

The inflation print corroborates with the view of the US Federal Reserve about inflation being transitory in nature.

According to the August 2021 Survey of Consumer Expectations of the Federal Reserve Bank of New York short- and medium-term inflation expectations increased to new series highs of 5.2% and 4.0%, respectively. Home price growth expectations continued to moderate in August but remain elevated. Households’ perceptions about their current financial situations improved, and income growth expectations rose to a new series high.