Inflation: Where prices are coming down

Yahoo Finance columnist Rick Newman looks at the shifting prices in car sales and gas prices, as well as the Biden administration's outlook on inflation.

Video transcript

- Well, the inflation story so prevalent, it's become a meme born out of a TikTok trend. We're paying more for everything from the gas pump to the grocery store and everywhere along the way. It takes the ultimate optimist to find some good news in the latest report, but we couldn't find one. So instead, we tapped senior columnist Rick Newman to go out and find some. What'd you find, Rick?

RICK NEWMAN: That's more like it, Dave. You called me Mr. Sunshine once and I almost had a heart attack. So I mean, the reason that I'm trying to spin it this way is because I've been tracking a bunch of consumer categories in the inflation picture since way back into last year and noticing a lot of changes, and there actually were some important changes in the numbers we got earlier this week. So in a few categories, most notably new cars, used cars, rental cars, and transportation overall, we've seen a huge decline in the rate of inflation.

If you remember back to January and February this year, used car inflation was 40% or higher. And I mean, we've never seen that before. That was just whack a doodle. And used car inflation, this has come down to the 7% to 10% range. New cars, we're still seeing high inflation there, but it's not what it used to be. And what this tells us is that the supply chain issues that were causing a shortage of these products in the first place, that we're working these things out.

So that's actually good news. Now, there are other categories where inflation is getting worse, not better. The most obvious one is gasoline-- 60% increase year over year in the latest numbers.

But there are a couple of other ones there that are really important to pay attention to. Gasoline gets all the attention, but household energy is up by more than 20% year over year, and the typical household spends more on heating and cooling their home and hot water than they do on gasoline. So household energy, that's going the wrong direction.

And then just housing costs overall, they are up by about 7%. That is lower than the overall rate of inflation, now 9.1%. But Americans spend a third of their budget on housing.

So those are the things that are going in the wrong direction. So it's a mixed picture. There's a lot of bad news, but there's some not so bad news.

- And so Rick, how much of that is about demand destruction, people perhaps giving up on trying to get a new car given how much some of these monthly rates are and just how expensive cars are overall right now?

RICK NEWMAN: Well, there's no simple category that says this amount of inflation or declining inflation is due to demand destruction. And there's also the question of what's the difference between destruction and deferral. So there is demand destruction happening with regard to things like gasoline.

I mean, if you combine two trips into one today, that's some gasoline you're not purchasing and you're never going to purchase. But if you think that a car is too expensive right now and you want to wait six months or a year. That is deferred consumption. And that's-- I mean, these are all actually good things. I mean, consumers do have choices. We are not automatons who just go out and spend the same amount or buy the same amount of stuff no matter what the price is.

We make rational decisions. And that's one of the things that probably will bring the inflation rate down during the next few months. Now I was wrong.

I thought inflation had peaked a couple of months ago when it hit 8.3%, and I was wrong about. That it went up to 8.6% and then now up to 9.1%. Still, I think we may be at the top now, and there are reasons to think we're not going to see inflation back at 4% by the end of this year, but we could see it under 8%.

SEANA SMITH: Rick, the Biden administration should listen to you because you just listed out a number of things in that inflation report that were actually pretty good. I haven't seen the Biden administration change the messaging like that. Am I missing something, or why aren't they latching on to the good parts of this report?

RICK NEWMAN: Well, you should call them up and tell them they need to start reading my columns and passing them around--

SEANA SMITH: I will. I will.

RICK NEWMAN: --in the presidential daily briefing. But the White House has-- they've been focusing on a different message or spin, if you prefer, this week. So they knew, like a lot of economists, that this number was going to be hot.

And they were actually doing briefings beforehand. Now they said, we don't yet know what the inflation number is. But they were trying to point out that the energy prices that go into the June inflation numbers, these are actually-- this is actually old data.

And they're right about this. I mean, the gas prices have actually fallen by almost $0.40, I think, at this point per gallon since June. So gasoline prices peaked at $5.02 in the middle of June, and that's right around the time that the government was gathering the inflation data.

Gas prices now, as you can see there, down $0.40 to about $4.60. And we know from the price of wholesale gasoline, which continues to go down, that we're going to see lower gas prices still because it takes a few weeks to get that transfer from the wholesale level to the retail level. So that's what the Biden administration was focusing on this week, and I think the reason is they're just obsessed with gasoline prices because Biden is the first president who ever had to explain gas prices that started with a 5 on average, and he needs to get them down to prices that start with a 3 on average, and we're not quite halfway there. So there's a long way to go.

SEANA SMITH: Yeah, it's an issue that a lot of voters focus on. Rick Newman, great to see you. Thanks so much--

RICK NEWMAN: Bye, guys.

SEANA SMITH: --for joining us.