Joe Manchin's inflation worries are threatening Biden's agenda, but we might have just passed the peak hysteria over runaway price hikes

• People have been worried about runaway inflation all summer, including Sen. Joe Manchin, but the latest CPI report showed a slowdown.
• Some of the big pandemic-era drivers of inflation, like used cars, started falling back to earth.
• Other worrisome "sticky" prices, like rent, haven't shown signs of accelerating yet.

Summer is almost over, and the latest economic data suggests that the season's inflation mania is also reaching an end.

Former Treasury Secretary Larry Summers kicked off the fears among the economic chattering class in March, calling Biden and the Fed's approach the "least responsible" macroeconomic policy in 40 years - meaning even less responsible than the 2008 housing bubble that nearly brought down the world economy.

Fast forward to August's consumer price index, and the argument in favor of "team transitory" - ie, Biden and the Fed - look stronger and stronger.

Consumer prices rose 0.3% in August, the Bureau of Labor Statistics said Tuesday, marking the second straight month of a slowdown in price growth. The Consumer Price Index - a popular measure of US inflation - still sits at decade highs on a year-over-year basis. But the slower growth seen in August suggests inflation could be tapering off and matching the predictions of the Biden administration and the Fed.

As the US economy began reopening in late spring and early summer, inflation leaped higher. June alone saw a 0.9% month-over-month increase in prices, the fastest price growth since the financial crisis.

Several Biden administration officials, including Labor Secretary Marty Walsh, said that they weren't overly concerned about inflation this summer and they believed such price spikes would be temporary. Similarly, Fed Chair Jerome Powell said in Congressional testimony in July that most inflation was coming from transitory reopening shocks and should abate through the rest of the year.

On the other side of the debate, beyond Summers, the powerful moderate Sen. Joe Manchin cited worries about runaway inflation in a Wall Street Journal op-ed explaining his trepidation around Democrats' $3.5 trillion social spending proposal. Tuesday's read of easing inflation data could make trillions of dollars of a difference if it changes Manchin's mind on what he may support.

Where inflation is easing up, and where it poses a lasting threat

The details of the report suggest that the worst could be behind us. Used cars and trucks have been one of the big drivers of inflation this year, with prices skyrocketing in the spring and early summer amid pandemic-caused supply shortages and a wave of new demand. Yet those prices actually declined in August, after seeing several double-digit monthly increases:

Other pandemic-affected sectors like airline tickets saw sharp increases in the spring, but had a 9.1% month-over-month decline in August as the Delta wave curbed demand.

In addition to those slowdowns in sectors highly affected by the pandemic, the August CPI report also showed few signs of more deeply rooted inflation that could prove a problem in the longer term.

The housing market is host to some of the most worrying inflation trends. Homebuyers have been facing an uphill battle all summer, with prices in many hot markets skyrocketing. Despite that, broad price increases for housing have remained modest. The shelter sub-index measured by the Bureau of Labor Statistics has risen steadily during the pandemic, but at a slower pace than overall inflation. August saw an even more modest increase in shelter prices:

So far, there hasn't been an acceleration in the price of shelter. That's a good sign for longer-term inflation, since house prices and rents tend to be "sticky," meaning that increases tend to only ratchet up and declines in prices are very rare. The type of long-term inflation feared by Summers and Manchin would likely start showing up in the above chart, and it hasn't materialized yet.

The August inflation report, then, makes it look like price increases are starting to simmer down. Team transitory is firmly in the lead.