U.S. inflation coming off the boil as prices increase slowly in August

WASHINGTON (Reuters) - Underlying U.S. consumer prices increased at their slowest pace in six months in August as used motor vehicle prices tumbled, suggesting that inflation had probably peaked, though it could remain high for a while amid persistent supply constraints.

The broad slowdown in price pressures reported by the Labor Department on Tuesday aligns with Federal Reserve Chair Jerome Powell’s long-held belief that high inflation is transitory. Still, economists cautioned it was too early to celebrate and expected the U.S. central bank to lay out plans in November to start scaling back its massive monthly bond-buying program.

“Inflation remains troublingly strong, even if it is not exploding like it did earlier in the year,” said James McCann, deputy chief economist at Aberdeen Standard Investments in Boston. “If we continue to see further step-downs in inflation over the next six months, that should ease the pressure on the Fed to quickly follow tapering with interest rate rises.”

The consumer price index excluding the volatile food and energy components edged up 0.1% last month. That was the smallest gain since February and followed a 0.3% rise in July.

The so-called core CPI was held back by a 1.5% decline in prices for used cars and trucks, which ended five straight monthly increases. Robust rises in prices of used cars and trucks, as well as services in industries worst affected by the COVID-19 pandemic, were the key drivers behind a heating up of inflation at the start of the year.

Airline fares plunged 9.1% in August, likely as a resurgence in infections, driven by the Delta variant of the coronavirus, sapped demand for air travel. There were also decreases in motor vehicle rentals and insurance.

In the 12 months through August, the core CPI increased 4.0% after advancing 4.3% in the 12 months through July. Economists polled by Reuters had forecast the core CPI would gain 0.3% for the month and increase 4.2% year-on-year.

Stocks on Wall Street were trading lower. The dollar fell against a basket of currencies. U.S. Treasury prices rose.