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Consumer Price Index: Headline Inflation Eases a Bit

August 16, 2016

by Doug Short

The Bureau of Labor Statistics released the July CPI data this morning. The year-over-year nonseasonally adjusted Headline CPI came in at 0.84%, down from 1.01% the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 2.20%, little changed from the previous month's 2.26%, although rounded to a decimal it's slight decrease from 2.3% to 2.2%.

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

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged 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 rose 0.8 percent before seasonal adjustment.

The energy index declined in July and the food index was unchanged. The index for all items less food and energy rose, but posted its smallest increase since March. As a result, the all items index was unchanged after rising in each of the 4 previous months.

The energy index fell 1.6 percent after rising in each of the last four months. The decline was due to a sharp decrease in the gasoline index; other energy indexes were mixed. The food at home index declined 0.2 percent as four of the six major grocery store food group indexes decreased, while the index for food away from home rose 0.2 percent. [More…] was looking for a 0.1% increase MoM in seasonally adjusted Headline CPI and 0.2% in Core CPI. Year-over-year forecasts were 0.9% for Headline and 2.3% 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. The highlighted two percent level is the Federal Reserve's Core inflation target for the CPI's cousin index, the BEA's Personal Consumptions Expenditures (PCE) price index.

Headline and Core CPI since 2000

The next chart shows both series since 1957, which was the first time the government began tracking Core Inflation.

Headline and Core CPI

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) were in place. They have since reverted to the two percent target in their various FOMC documents.

Federal Reserve policy, which in recent history has focused on core inflation measured by the core PCE Price Index, will see that the more familiar core CPI is above the PCE target range of 2 percent.