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Economy in Brief

Core CPI Firmer Than Expected
by Tom Moeller July 19, 2006

Consumer prices (CPI-U) rose an expected 0.2% during June. The 0.3% rise in prices less food & energy was, however, like the previous month firmer than expectations for a 0.2% gain.

The upside surprise in "core" price inflation represented the fourth consecutive month of 0.3% gain. It pulled the y/y gain in prices to 2.7%, the fastest since mid-2001.

Core goods prices rose 0.1% for the third consecutive month. While the resulting 0.5% y/y increase is modest, and indeed below a high 0.9% gain in early 2005, the rise contrasts with outright price deflation from 2002 to 2004.

Furniture & bedding costs rose 0.3% (2.0% y/y) in June to produce the strongest y/y increase in ten years. Apparel prices were unchanged last month (0.6% y/y) but here again the y/y gain was the firmest in two years. Appliance prices fell 0.3% (+0.7% y/y) while new & used motor vehicle prices ticked up 0.1% (0.1% y/y). Tobacco prices jumped 0.8% (4.8% y/y) and medical care commodity prices fell 0.1% (3.9% y/y).

Core services prices rose 0.4% for the second consecutive month. Shelter prices again increased 0.4% (3.5% y/y) reflecting another strong 0.4% increase in the rental equivalence measure of owners' primary residences. The 3.6% y/y increase in this measure is the fastest since late 2002. Rents also increased 0.4% (3.5% y/y), an acceleration from the low of 2.5% in early 2004. Public transportation costs also have shown considerable strength and in June rose 1.2% to pull the y/y gain to 5.4%. Finally, education costs rose 0.5% for the fourth consecutive month (6.0% y/y) and medical care services prices rose 0.4% (4.2% y/y).

Food & beverage prices rose 0.3% helped by a 0.4% (0.4% y/y) rise in meat, fish & poultry prices. Fruit & vegetable prices soared 1.4% to lift the y/y increase to 4.0%.

Energy prices fell 0.9% due to a 1.0% decline in gasoline prices which has since reversed while natural gas & electricity prices fell 1.1% (+11.9% y/y).

The chained CPI, which adjusts for shifts in the mix of consumer purchases rose 0.3%. Less food & energy the increase in prices also was stable at 0.1%.

Is All That Talk Just Noise? from the Federal Reserve Bank of St. Louis is available here.

Consumer Price Index June May Y/Y 2005 2004 2003
Total  0.2% 0.4% 4.3% 3.4% 2.7% 2.3%
 Total less Food & Energy 0.3% 0.3% 2.7% 2.2% 1.8% 1.5%
  Goods less Food & Energy 0.1% 0.1% 0.5% 0.5% -0.9% -2.0%
  Services less Energy 0.4% 0.4% 3.5% 2.8% 2.8% 2.9%
 Energy -0.9% 2.4% 23.2% 16.9% 10.8% 12.2%
 Food & Beverages 0.3% 0.2% 2.3% 2.4% 3.4% 2.1%
             
Chained CPI: Total (NSA) 0.3% 0.3% 3.7% 2.9% 2.5% 2.0%
 Total less Food & Energy 0.1% 0.1% 2.4% 1.9% 1.7% 1.1%
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