Consumer prices rose in August at a 3.6% annual rate, down from a 6.1% annual rate in July, the US Bureau of Labor Statistics reported Sept. 14. The cost of shelter, which accounts for two-fifths of the US Consumer Price Index, reportedly rose by just 0.2%, the smallest increase since February, and less than half the July and August level.

With private surveys reporting a nearly 20% jump in home prices over the past year and 10% to 12% increases in rent, the official number is a mystery.

The credibility of the Biden Administration hinges on the inflation outlook, with the Administration pushing a $3.5 trillion stimulus plan against objections of many Democratic legislators who fear the wrath of voters over inflation.

The Biden stimulus reportedly is just three votes away from collapse in the House of Representatives, and the defection of one West Virginia senator may sink the plan in the Senate.

Inflation expectations have risen past the pain threshold in all the major surveys. On Tuesday the New York Federal Reserve reported that consumers expect 5.2% inflation over the next year and 4% inflation over the long term.

The BLS also reported a 1.5% drop in used car prices, not surprising after a 32% year-on-year increase in the category. Dealer lots are empty, with an inventory of just three weeks of sales, the lowest on record.

Industry analysts expect US auto production to fall by 1.5 million units this year due to shortages of computer chips. The sales crash is the result of production bottlenecks in the face of continuing high demand, which means that the all-in price of new cars will rise sharply as dealers eliminate discounts and charge the full sticker price.

Prices for household electronics are set to rise sharply due to the chip shortage, which led major semiconductor fabricators to mark up prices by 20% to 30%. That implies a 15% price increase for a low-end smartphone, according to industry analysts.

Some prices are falling, to be sure, but for things that Americans don’t want. Airfares dropped sharply during the month as travelers canceled plans due to the resurgent COVID-19 epidemic, and the overall index for transportation services was down 2.3% on the month.

But the observed prices for the main items in the household budget – shelter, auto transport, food and energy – continue to rise. The Cleveland Federal Reserve projects a 6.3% annualized increase for the Consumer Price Index during the third quarter.