Consumer Price Index: July Headline & Core Below 2% for Third Consecutive Month

The Bureau of Labor Statistics released the July Consumer Price Index data this morning. The year-over-year non-seasonally adjusted Headline CPI came in at 1.73%, up from 1.63% the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 1.69%, down fractionally from the previous month's 1.70%.

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) rose 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 rose 1.7 percent. The indexes for shelter, medical care, and food all rose in July, leading to the seasonally adjusted increase in the all items index. The energy index declined slightly in July, with its major component indexes mixed. The index for natural gas declined, while the electricity index rose and the gasoline index was unchanged. The food index increased 0.2 percent, with the indexes for food at home and food away from home both rising.

The index for all items less food and energy rose 0.1 percent, the fourth month in a row it increased by that amount. The indexes for shelter, medical care, recreation, apparel, motor vehicle insurance, and airline fares all rose in July. These increases more than offset declines in the indexes for new vehicles, communication, used cars and trucks, and household furnishings and operations.

The all items index rose 1.7 percent for the 12 months ending July, a slightly larger increase than for the 12 months ending June. The index for all items less food and energy also rose 1.7 percent for the 12 month period, the same increase as for the 12 months ending May and June. The energy index rose 3.4 percent over the last year, while the food index increased 1.1 percent. [More…]

Investing.com was looking for a 0.2% increase MoM in seasonally adjusted Headline CPI and 0.2% in Core CPI. Year-over-year forecasts were 1.8% for Headline and 1.7% 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 Consumption Expenditures (PCE) price index.

Headline and Core CPI since 2000

The next chart shows both series since 1957, the year the government first 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 currently at the PCE target range of 2 percent.