Falling lumber prices show inflation will be temporary - and used car prices will soon follow suit, Fed's Powell says

• Fed chair Powell said declining lumber prices indicate that inflationary pressures will be temporary.
• He also said that used car prices will soon follow in lumbers path.
• Lumber prices have fallen more than 43% since May's record high of over $1,700 per thousand board feet.

Fed chair Jerome Powell said falling lumber prices illustrate that inflation will prove to be temporary in his press conference Wednesday.

The central bank head acknowledged that inflation data has come in above expectations over the last few months, but said that the data is consistent with the view that the prices that are driving higher inflation are from categories that are being directly affected by the recovery out of the pandemic, like lumber.

"The thought is that prices like that, that have moved up really quickly because of shortages and bottlenecks and the like, they should stop going up. And at some point, they, in some cases, should actually go down. And we did see that in the case of lumber," Powell said.

Lumber prices have fallen more than 43% since May's record high of over $1,700 per thousand board feet, although they remain more than 139% higher over the last 12 months, making it one of the best-performing commodities in that time-frame.

Last week, lumber futures fell 18% in the biggest weekly decline for most-active futures in records going back to 1986, per Seeking Alpha.

The Fed chair said used car prices may soon follow Lumber's trajectory. Used car prices accounted for more than a third of the total increase in core inflation from May's reading. Powell said a "perfect storm of very strong demand and limited supply" has driven the prices up.

"It's going up at just an amazing annual rate. But we do think that it makes sense that that would stop and that, in fact, it would reverse over time," he added.

As for when the trend will reverse, Powell said the Fed is not sure.

"But over time it seems likely that these very specific things that are driving up inflation will be-will be temporary," said Powell. However, he added that the bank is carefully monitoring the risk of inflationary pressures continue longer than expected.

"And if we see inflation expectations and inflation-or inflation moving up in a way that is really materially above what we-what we would see as consistent with our goals, and persistently so, we wouldn't hesitate to use our tools to address that. That's-price stability is half of our mandate, and we would certainly do that," the Fed chair said.