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Economy in Brief

June's 0.7% Rise In CPI Still Left Yr/Yr Drop As Largest Since 1950
by Tom Moeller July,15, 2009

Pricing power continues to suffer from the current recession. While the June report on consumer prices showed a 0.7% rise (about matching expectations for a 0.6% increase), the larger story was year-to-year drop of 1.2%, the largest since early-1950 -- and the well-behaved 0.2% rise in core pricing.

The strength behind last month's overall price gain was a 7.4% increase in energy prices. Despite the increase, however, energy prices remained down by one-quarter from their year-ago level. Higher gasoline prices powered the increase, rising 17.3% from May. Again, year-to-year, gasoline prices are still down 34.4%. Along with the gain in gasoline was a 2.0% (-40.3% y/y) rise in fuel oil prices which was the first monthly increase since July. Finally, prices for natural gas & electricity fell 1.2% (-8.2% y/y).

Food & beverage prices provided little upward pressure in the overall pricing environment. Prices ticked up just 0.1% after four consecutive months of decline and the y/y change of 2.2% was the weakest since 2006, down from a peak of 6.1% last fall. Recent weakness has been led by lower dairy product prices (-7.1% y/y). Prices for meats, poultry & fish (0.5% y/y), cereals & bakery products (2.9% y/y) as well as fruits & vegetables (-2.0% y/y) have eased sharply.

Finally, "core" pricing remains tame. The CPI less food & energy increased 0.2% last month. That was above expectations and was above the 0.1% May gain but equaled the average monthly average this year. The potentially bad news, however, was the annualized gain of 2.3% in core prices so far this year was well above the recent low of 1.0%.

That upturn in overall core pricing power reflects a firming of core goods prices. They increased 0.3% last month and the 3.9% annualized rate of increase so far this year compares with little price change during the prior three years. Higher tobacco prices account for much of that acceleration. As taxes have been raised costs increased 0.8% last month and so far this year prices have risen at a 53.4% annual rate. There also has been modest firming of prices elsewhere. Prices of new & used motor vehicles increased 0.7% during June and rose at a 6.8% rate so far this year after a decline of 1.5% last year. Apparel prices also were firm last month and posted a 0.7% increase and are up at a 3.3% rate this year. Continuing weak, with the housing market, were prices for household furnishings & operation. They were unchanged for the third straight month and up at a modest 0.8% this year, about the same as during all of 2008.

Also showing the effect of economic recession were core services prices. The 0.1% uptick last month was the fourth this year and left them up at a 1.7% rate this year, near the weakest since 1983. Weakness in the housing market accounts for much of that moderation. Last month, shelter prices ticked up just 0.1% for the second month and they've risen at a 1.1% annual rate so far in 2009. Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, ticked up just 0.1% (1.9% y/y) for the third consecutive month. Elsewhere, public transportation prices have been falling since last summer and at a 13.1% rate this year. Conversely, the increase in medical care services prices of 3.7% since December is off the low. Education costs also have been firm and were up 0.4% last month and up at a 5.3% annual rate this year.

The chained CPI, which adjusts for shifts in consumption patterns, gained 0.9% in June while year-to-year prices fell 1.3%. Chained prices less food and energy were unchanged last month but the six-month change of 2.7% is up sharply from no change as of the end of last year.

The consumer price data is available in Haver's USECON database while detailed figures can be found in the CPIDATA database.

Is there less agreement about inflation? from the Federal Reserve Bank of St. Louis is available here.

Consumer Price Index (%) June May Y/Y  2008 2007 2006
Total  0.7 0.1 -1.2 3.8 2.9 3.2
Total less Food & Energy 0.2 0.1 1.7 2.3 2.3 2.5
  Goods less Food & Energy 0.3 0.2 1.5 0.1 -0.4 0.2
    Services less Energy 0.1 0.1 1.9 3.1 3.4 3.4
  Energy 7.4 0.2 -25.2 13.5 5.7 11.0
  Food & Beverages 0.1 -0.2 2.2 5.4 3.9 2.3
              
Chained CPI: Total (NSA)  0.9 0.3 -1.3 3.3 2.5 2.9
 Total less Food & Energy  0.0 -0.0 1.3 2.0 2.0 2.2
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