Ahead of Jackson Hole, July Inflation Remained Subdued

August 19, 2014

by Doug Short

The Bureau of Labor Statistics released the July CPI data this morning. Year-over-year unadjusted Headline CPI came in at 1.99%, which the BLS rounds to 2.0%, little unchanged from the previous month' 2.07%. Year-over-year Core CPI (ex Food and Energy) came in at 1.86% (rounded to 1.9%), essentially unchanged from the previous month's 1.93%. The non-seasonally adjusted month-over-month Headline and Core numbers were fractionally negative (-0.04% and -0.01%, respectively. On a seasonally-adjusted basis, the all items index posted its smallest increase since February. When we dig deeper, we see that food prices rose but were offset by declines in the energy subcomponents. Inflation remains subdued as we approach the Fed's Jackson Hole summit later this week.

Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in July on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.0 percent before seasonal adjustment.

The all items index posted its smallest seasonally adjusted increase since February; the indexes for shelter and food rose, but were partially offset by declines in the energy index and the index for airline fares. The food index rose 0.4 percent in July, with the food at home index also rising 0.4 percent after being unchanged in June. The decrease in the energy index was its first since March and featured declines in the indexes of all the major energy components.

The index for all items less food and energy increased 0.1 percent in July, the same increase as in June. Along with the shelter index, the indexes for medical care, new vehicles, personal care, and apparel all increased in July. Along with the index for airline fares, the indexes for recreation, for used cars and trucks, for household furnishings and operations, and for tobacco all declined in July.

The all items index increased 2.0 percent over the last 12 months, a slight decline from the 2.1 percent figure for the 12 months ending June. The index for all items less food and energy rose 1.9 percent over the last 12 months, the same figure as for the 12 months ending June. The energy index has increased 2.6 percent, and the food index has risen 2.5 percent over the span.   [More…]

Investing.com was looking for increases of 0.1% for Headline and 0.2% for Core CPI. Year-over-year forecasts were 2.0% for Headline CPI and 1.9% for Core.

The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since the turn of the century. I've highlighted 2 to 2.5 percent range, which the Federal Reserve currently targets for the CPI's cousin index, the BEA's Personal Consumptions Expenditures (PCE) price index.

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The next chart shows both series since 1957, which was the first time the government began tracking the core inflation metric.

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In the wake of the Great Recession, two percent has been the Fed's target for core inflation. However, at their December 2012 FOMC meeting, the inflation ceiling was raised to 2.5% while their accommodative measures (low Fed Funds Rate and quantitative easing) are in place.

Federal Reserve policy, which has historically focused on core inflation as measured by the core PCE Price Index, will see that the more familiar core CPI has reached the PCE the target range of 2 to 2.5 percent.

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