–July CPI Unchanged; Core +0.3%
By Denny Gulino
WASHINGTON (MaceNews) – The welcome way the latest Consumer Price Index came in below expectations Wednesday reinforced hopes the trajectory of high consumer inflation has finally improved.
The July report’s headline number, the one that most influences inflation expectations, was unchanged, the lowest reading for any month since the slight negative in May 2020. Forecasters generally had seen it arriving a half point higher.
The core rate, excluding the month’s improvement in gasoline prices, was up 0.3%, again below expectations.
The annual rate, the consumer inflation rate that is often disregarded by economists because it depends on the comparison to a less relevant year-earlier figure, was 8.5% through July, a couple tenths below even the optimistic consensus, the lowest since April and way better than the 9.1% through June. The annualized core rate was 5.9%.
However, the relatively small improvement in price pressures might not be noticeable for consumers themselves, even as markets spasmed at the directional softening. For consumers who have repeatedly seen inflation take away even the sizable gains in nominal wages, the bottom line has scarcely budged.
The numbers galvanized a surge in Treasuries which steepened the yield curve and lowered rates, pushed U.S. stock futures higher and recalibrated lower the majority expectations for the next Federal Reserve rate hike.
Yet the rate of change for prices remained highly accelerated, with food prices up 1.1% for the month, a stronger gain by a tenth than the previous month. Dairy prices were up a red-hot 14.9% annualized as were cereals, at an annual 15.0%.
Gasoline prices plummeted 7.7%, an historically exceptional decline for a single month, part of a trend that has continued in the current month. Still, energy costs over the year through July are up 32.9%.
Used car prices dropped 0.4% as they did in April before a strong upward rebound. But new car prices rose 0.6%, the least since March, yet still at an annual rate still stratospherically high at 10.5%.
Auto insurance also stayed in the bad-news column, up 1.3% for the month, a 7.4% annualized hike.
Core commodity prices rose just 0.2%, matching April’s modest increase and just half the increase for non-energy services.
The particularly dark side of the report was the way shelter costs, perhaps the least transitory major category, has pushed aside energy as the generator of bad news. Shelter overall was up half a percent, an annualized 5.7%, while rents rose an ominous 0.7%.
Shelter is the flywheel of the CPI, with its outsized 32% weighting, and not prone to month-to-month volatility. That means its slow shift into overdrive this year is likely to persist. The Fed’s favored inflation measure is for personal consumption expenditures, not as vulnerable to housing yet with less influence on public perceptions.
With 42 days to go until the next Federal Open Market Committee policy reassessment, the CME Fedwatch tool flipped to show expectations for a 50 basis point hike ahead of those for 75. Whatever the increase, it will mark the Fed’s long awaited beginning of actual tightening from its posture up to now of merely removing accommodation. What tightening has occurred has been at the hands of market rates, driven up by the Fed’s threatening “forward guidance,” now discontinued in favor of a meeting-by-meeting decision based on the latest data.
There will be another CPI report before September’s FOMC meeting and further improvement could be of some importance to the pace of future rate hikes though the Fed’s ultimate goal may remain a noticeably restrictive stance.
Back to the inflation scorecard, food prices were still going up in July at a torrid pace as they have for seven months. Coffee, for instance, skyrocketed 3.5% in the month. Food at home is up is up 13.1% in the year.
Airline fares went down for a second month, this time by a huge 7.8% for July, still up 27.7% for 12 months.
Medical care services rose a modest 0.4%, an annual change up 5.1%.
The August CPI is due September 13.
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Contact this reporter: denny@macenews.com
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