JULY CPI UP 0.8%, CORE UP 0.3%
The July CPI rose 0.8%, twice the increase that most analysts had expected. The core rate of inflation was 0.3% in July, slightly above the 0.2% increase that was anticipated. Y-on-y the all items index is up 5.6%, the largest 12-month increase since January 1991. Y-on-y the core index increased 2.5%.
Energy and food prices continued to drive the headline inflation number higher. Energy prices rose 4% in July on a 4.1% increase in gasoline prices and a 7.4% increase in natural gas prices. Food prices rose 0.9% overall but food consumed at home rose 1.2% as meat, dairy, cereal prices and fruit and vegetable prices all rose over 1%.
The core rate of inflation rose 0.3% for the second month in a row. Core commodity prices rose 0.5%, its largest gain since 1999, as apparel prices rose 1.2%, new vehicle prices rose 0.2%, educational books and supplies rose 0.8%, and tobacco products rose 1.2%. Core services rose 0.3% as rent increased 0.3% and lodging away from home rose 0.7% but the heavily weighted owners equivalent rent rose only 0.1% in July after a 0.3% increase in June. The cost of health care services rose 0.2% in July, its smallest gain in 3 months but tuition increases were up 0.4% and public transportation costs continued to rise on higher fuel prices, up 1.1% for the month. Airline fares were the largest contributor to that increase, up 1.3% in July and up 20% over the past year.
There continues to be a dichotomy between goods and services prices. Despite a 0.5% increase this month, core commodities prices are up only 0.6% for the year while core services prices have increased 3.3%. If today’s increase in the core goods prices are an indicator of a feed through of higher import prices or the costs of materials, those could continue to put upward pressure on the core rate of inflation. However, tobacco price increases are unlikely to continue at the current pace and with a weak economy, apparel and auto price increases are likely to be reversed.