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Inflation slowed down sharply in August after it started softening in July, as the Delta wave hits the brakes on spending

Business Insider logo Business Insider 9/14/2021 (Ben Winck,Andy Kiersz)
A consumer shops as she wears a mask at a retail store in Morton Grove, Ill., Wednesday, July 21, 2021. Nam Y. Huh/AP Photo © Nam Y. Huh/AP Photo A consumer shops as she wears a mask at a retail store in Morton Grove, Ill., Wednesday, July 21, 2021. Nam Y. Huh/AP Photo
  • The Consumer Price Index climbed 0.3% in August, missing the average economist forecast.
  • The reading reflects a slowdown from the 0.5% jump in July.
  • The data suggests nationwide price growth continued to cool as the Delta variant curbed the US recovery.
  • See more stories on Insider's business page.

Inflation cooled off - again - in August as the wave of Delta cases slowed spending and threatened the broader economic recovery.

The Consumer Price Index - a popular measure of nationwide price growth - gained 0.3% last month, the Bureau of Labor Statistics said Tuesday. That missed the median estimate for a 0.4% jump from economists surveyed by Bloomberg. It also reflected a slowdown from July's 0.5% increase.

The CPI also rose 5.3% on a year-over-year basis. That matched the average forecast of 5.3% growth.

The aforementioned metric tracks the prices of various goods and services to measure inflation in the US economy. Core CPI, which excludes volatile food and energy prices, gained 0.1% last month, falling short of the 0.3% estimate. That marked the weakest core inflation since February and a slowdown from 0.3% growth in July.

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Inflation soared to decade highs through the spring and summer as economic reopening brought a handful of strains. Production bottlenecks left businesses struggling to shore up supply, and the labor shortage hampered hiring efforts. On the other end of the economy, the easing of economic restrictions sparked a spending spree across the country as Americans flocked to reopened businesses. The resulting mismatch between supply and demand drove businesses to raise prices at the fastest rate since 2008.

That sudden surge in price growth has since eased up. The CPI price index's year-over-year reading was flat through July, and several of the sectors powering stronger inflation cooled off. The recent slowdown in monthly price growth suggests the outlook held by the Biden administration and the Federal Reserve could ring true. Both have said stronger inflation will die down into 2022 as supply chains heal and huge demand fades.

The Delta wave of COVID cases also likely crimped inflation. Measures of consumer spending floundered through late July and August as case counts soared higher and governments reimposed some economic restrictions. Wall Street banks lowered their expectations for economic growth on the spending slowdown, and consumer sentiment plummeted as Americans braced for another virus resurgence.

Where's the inflation showing up?

Gasoline costs were the biggest gainer in August, with prices rising 2.8% through the month. Energy prices broadly rose 2%, and food prices edged 0.4% higher. Shelter prices - including rent, owners' equivalent rent, and hotels - rose just 0.2%, half the increase seen in July.

Used car and truck prices fell 1.5% last month, reversing course after booming through reopening. Prices of used vehicles rose at least 7.3% in April, May, and June before slowing to just 0.2% growth in July. The category came to represent the economic imbalances that powered stronger inflation. Semiconductor shortages halted new vehicle production, and the limited supply of used cars led prices to soar as more Americans rushed to buy.

The August reversal in used-vehicle inflation signals price growth is proving transitory, as the White House and the Fed anticipated.

"Breaking down the release suggests that supply shortage-driven price pressures continue to ease, while the reopening-driven price boom is also starting to fade," Seema Shah, chief strategist at Principal Global Investors, said.

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