CPI & Empire State Mfg Index
The overall CPI rose by a m/m 0.1% in July (the median forecast was +0.1%) after a 0.2% rise in June, an energy-driven 0.7% jump in May, a 0.4% increase in April, a 0.6% rise in March, a 0.4% increase in February, and a 0.2% rise in January.
Of much more importance to markets was that the core portion of the index was reported to have increased by a m/m 0.2% in July, which compared to a median forecast of +0.2%. This followed a 0.2% rise in June, a 0.1% increase in May, a 0.2% rise in April, a 0.1% increase in March, a 0.2% gain in February, a 0.3% rise in January and 0.1% increases in the preceding three months. On an unrounded basis, the seasonally adjusted July core increase was 0.236%, which followed increases of 0.232% in June, 0.150% in May, 0.177% in April, 0.061% in March, 0.241% in February, 0.256% in January, 0.144% in December, 0.096% in November, and 0.145% in October.
The heavily-weighted homeowners’ equivalent rent component increased by a m/m 0.2% in July after increases of 0.2% in June, 0.1% in May, 0.2% in April and 0.3% in March and February. This critical component of the core CPI appears to have peaked, which will go a long way toward keeping a lid on overall core inflation at the consumer level (although it has less of a weight in the core personal consumption price index, and thus had less of an upward impact on that index earlier and will have less of a downward influence now).
Calculated on a y/y basis, the overall index was up 2.4% in July after +2.7% in June, +2.7% in May, +2.6% in April, +2.8% in March, +2.4% in February, +2.1% in January, +2.5% in December 2006, +2.0% in November, and +1.3% in October.
The core index was up by a y/y 2.2% in July after +2.2% in June, +2.2% in May, +2.3% in April, +2.5% in March, +2.7% in February, +2.7% in January, +2.6% in December 2006, +2.6% in November, and +2.7% in October. Measured on a three-month annualized basis, the core index was up at a 2.5% rate in July after +2.3% in June, +1.6% in May, +1.9% in April, +2.3% in March, +2.6% in February, +2.0% in January, +1.4% in December 2006, +1.6% in November, and +2.3% in October.
The energy component of the overall CPI fell by a m/m 1.0% in July (+1.0% y/y) after a 0.5% drop in June, a 5.4% rise in May, a 2.4% increase in April, a 5.9% jump in March, a 0.9% rise in February, a 1.5% drop in January, a 4.2% rise in December 2006, a 0.2% decline in November, and a 6.7% decline in October. Food prices rose by a m/m 0.3% in July (+4.2% y/y) after +0.5% in June, +0.3% in May, +0.4% in April, +0.3% in March, +0.8% in February, +0.7% in January, -0.1% in December 2006, -0.1% in November, and +0.3% in October. Higher food and/or energy price inflation, if sustained, would not be a positive factor for discretionary consumer spending.
Empire State Mfg Index 25.06 in August After 26.46 in July
The Empire State Manufacturing Diffusion Index (calculated by the Buffalo branch of the New York Federal Reserve Bank) fell to 25.06 in August from 26.46 in July. Earlier results were 25.75 in June, 8.03 in May, 3.80 in April, 1.85 in March, 24.35 in February, and 9.13 in January.
The August reading compared to a median forecast of 18.0.
The 6-months expectations index for general business conditions rose to 50.40 in August from 48.24 in July, and these followed results of 44.14 in June, 49.79 in May, 33.85 in April, 35.17 in March, 38.49 in February, and 32.54 in January.
The only reason the Empire index interests markets is that it is seen as a precursor to moves in the Philadelphia Fed index for the month, which in turn is viewed as a leading indicator of the ISM manufacturing index. Sometime this works; often it does not. Moreover, even when these indices manage to move in the same direction, the relative magnitude of the changes often varies greatly. We therefore do not think that the Empire index adds much of value to the economic knowledge base, and it tends to receive more market attention than warranted.