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Economy in Brief

U.S. CPI Fell With Gasoline Prices
by Tom Moeller September 16, 2008

The August consumer price index (CPI-U) fell 0.1%, according to the Bureau of Labor Statistics. The Consensus expectation was for no change. Despite the decline, the three-month rate of change remained elevated at 7.2%. That will fall sharply with the September reading as a result of the further decline in energy prices.

Energy prices reversed a strong July increase and fell 3.1%. The August decline was led by a 4.2% drop in gasoline prices but they still were up by one-third from one year earlier. Fuel oil prices also posted a strong 6.5% m/m decline yet they too remained firm, up 49% versus last August. Prices for natural gas & electricity fell 1.1% (+14.7% y/y).

So far this month, not seasonally adjusted gasoline prices are down 1.6% m/m following the 7.4% decline during August.

Food & beverage prices continued strong and they posted a 0.6% increase last month. The y/y gain of 5.9% remained the fastest since early 1990. Prices for meats poultry & fish repeated their July performance and rose a strong 1.0% and they are up at a 12.2% annual rate during the last three months. This compares to a 2.5% rate during the first quarter. Prices for dairy product prices also have been strong. The 0.4% August gain lifted the three-month rate of increase to 15.3% after a 7.4% rise during 2007. Prices for cereals & bakery products ticked down 0.1% (+11.7% y/y) after their 1.8% jump during July.

The 0.2% increase in the CPI less food & energy matched Consensus expectations. The 3.4% three-month rate of increase, however, remained near the quickest since mid-2006.

Core goods prices rose just 0.1% after their 0.5% jump during July. That combination left the three-month rate of increase at 2.5%, up from a roughly unchanged level over the last few years. Apparel prices were strong. They posted a 0.5% increase after a 1.2% (1.7% y/y) rise during July. Prices for household furnishings & operations firmed, increasing 0.2% (1.2% y/y) and 0.4% in July. The y/y increase compares to price deflation through this past April. Offsetting some of this strength was a 0.4% (-0.9% y/y) decline in prices for new & used motor vehicles. Tobacco prices ticked up 0.1% (7.6% y/y) following their 1.2% spike during July.

Core services prices remained firm and they rose 0.2%. That left the three-month growth rate at 3.8% which remained near the fastest in two years. Public transportation prices rose another 1.1% in July (15.2% y/y) and they're up at a 25.0% annual rate during the last three months. Medical care services prices rose 0.3% (3.9% y/y) but shelter prices nudged up only 0.1% (2.4% y/y) during August. That was the weakest y/y gain since early-2006. Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, repeated the July performance and inched up 0.1% (2.5% y/y). Rents also repeated the July gain of 0.3% (3.8% y/y). Education costs have been firm. The 0.6% August rise lifted the y/y gain to 6.0%. Recreation prices also were firm and they posted a 0.5% gain. Their 2.4% y/y rise compares to a 0.5% increase during all of last year.

The chained CPI, which adjusts for shifts in consumption patterns, fell 0.2%. Less food and energy, chained prices rose 0.2%.

Housing and Financial Crisis from the Brookings Institute can be found here.

What Is the Optimal Inflation Rate? from the Federal Reserve Bank of Kansas City can be found here.

Consumer Price Index (%) August July Y/Y  2007 2006 2005
Total  -0.1 0.8 5.4 2.9 3.2 3.4
Total less Food & Energy 0.2 0.3 2.5 2.3 2.5 2.2
  Goods less Food & Energy 0.1 0.5 0.6 -0.4 0.2 0.5
    Services less Energy 0.2 0.3 3.3 3.4 3.4 2.8
  Energy -3.1 4.0 27.4 5.6 11.0 17.0
  Food & Beverages 0.6 0.9 6.1 3.9 2.3 2.5
Chained CPI: Total (NSA)  -0.2 0.4 4.7 2.5 2.9 2.9
 Total less Food & Energy  0.2 0.2 2.2 2.0 2.2 1.9
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