US prices for durable consumer goods are rising for the first time since 1995! This at least shows how quickly prices can react to changing framework conditions. For some time now it has seemed to us only a matter of time before inflation in the USA would rise moderately in the end. The measures to combat the pandemic initially dampened both supply and demand. However, the supply side tends to be more rigid as it takes time to build capacity. Meanwhile, generous fiscal transfers have maintained households’ purchasing power. So if the restrictions on economic activity are eased somewhat, higher aggregate demand is likely to be offset by lower supply. At least temporarily, prices would then rise, perhaps initially for goods that promise “happiness” in times of social distancing.
As can be seen from our “Chart of the Week”, the latest US consumer durables prices (PCE index) in August provide some evidence to support the above scenario. For the first time in 25 years, they have seen positive development after sinking deep into disinflationary territory. Home appliance prices (up 10 percent since February 2020) and used cars (up 17 percent) were the main drivers.