US inflation fuelled by surge in prices of second-hand cars

US CONSUMER prices were 5.4pc higher in July than the same month last year as inflationary pressures continued to grip the world’s biggest economy.

The figure was slightly higher than expected as inflation was driven by a sharp increase in energy prices and used car prices.

Prices rose 0.5pc in July, in line with expectations and marking a slowdown from the 0.9pc jump in June. But core inflation, which strips out volatile elements including fuel and food, fell slightly from 4.5pc to 4.3pc

The cost of second-hand cars in America has soared in the past year, as a chip shortage slows production of new vehicles. The average price of used vehicles has risen by more than 40pc in 12 months.

July’s increase ends a period of rapid growth for annual inflation, partly driven by “base effects” from a fall in prices at the onset of the pandemic.

It may reduce pressure on the Federal Reserve, which has said the inflationary effects are transitory, to reel in its expansive monetary policy stance.

Seema Shah, chief strategist at Principal Global Investors, said it was a “hot” report, but “should reassure markets that inflation isn’t on a relentless upward trend”.

After a two-day meeting last month, the Federal Open Market Committee said “progress” had been made towards its twin key goals of average inflation of about 2pc and full employment.

It is expected to begin tapering monetary support later this year or in early 2022, with a decision on cutting down its $120bn (£87bn) a month debt purchasing programme expected to come first.

Two of its most hawkish members have supported beginning tapering as soon as September.

The Fed chairman, Jerome Powell, warned that disruptions to supply chains could lead to inflation being stronger and more persistent than had initially been expected, pointing to “bottlenecks” that are pushing prices higher for manufacturers and leading to shortages.

A series of strong labour market reports have suggested the world’s biggest economy is bouncing back strongly from the pandemic hit.

Payrolls figures for July, released last week, showed the US regained 943,000 jobs in July, the strongest figure in nearly a year. The rise took the overall unemployment rate from 5.9pc to 5.4pc.

Speaking ahead of those figures, Mr Powell said the US was still “a ways away” from substantial further progress towards target employment levels.