U.S.: Used vehicle prices big factor in boosting core inflation to a 25-year high - TD Bank Financial Group

According to ActionForex, analysts at TD Bank Financial Group discuss U.S. inflation report for April.

"Consumer prices surprised on the upside in April, rising 0.8% month-on-month (m/m), versus expectations for a 0.2% m/m gain. That boosted the headline inflation rate to 4.2% year-on-year (y/y), up from 2.6% in March."

"A 10% m/m gain in used vehicle prices accounted for over one-third of the headline increase in inflation. That was the largest one-month increase in used vehicle prices ever."

"Core prices (ex. food and energy) also came in above expectations, rising by 0.9% m/m% (the median consensus estimate was for 0.3%). That drove year/year core inflation to 3% in April – the largest increase since 1996. Used vehicle prices were a big part of the story, but inflation pressures accelerated for a variety of goods and services in April. The biggest factors were shelter (+0.4% m/m), which accelerated on prices for lodging away from home (+7.6% m/m), airline fares (+10.2%), recreation (+0.9% m/m), motor vehicle insurance (+2.5% m/m), and household furnishings and operations (+0.9% m/m). Significant price increases were also seen for car and truck rentals (+16.2% m/m), new vehicles (0.5% m/m) and prescription drugs (+0.5% m/m)."

"April’s inflation report provides plenty of fodder for those worried about an acceleration in inflation. Many have worried that the large fiscal stimulus underway in the U.S. will run up against pandemic-related capacity constraints and supply chain disruptions and cause a surge in price pressures. Many of the biggest price hikes in April do fall in areas that have seen the biggest disruptions during the pandemic - travel-related areas like airline fares, car rentals and hotels, where demand is picking up sharply as Americans are vaccinated."