CPI Decline Revisits 1950 As Core Price Gain Slows To Smallest Since 2004

Deflation is much too strong a word to describe all of the pieces of the current pricing environment, but it appropriately denotes the CPI total and some of its components. Last month, the CPI matched Consensus expectations and was unchanged from June. More to the point, versus June of last year, the 1.9% decline again was the largest since early-1950. Stripping out food & energy, prices rose an expected 0.1% which lessened the y/y gain to 1.6%, its least since early 2004.

The 0.4% decline in energy prices reversed a small piece of the June jump and left them down by more than one-quarter from the year-ago level. Gasoline prices slipped 0.8% (-37.3% y/y) after a 17.3% jump during June. Fuel oil prices also reversed roughly half of their June rise with a 1.1% (-41.8% y/y) drop. Finally, prices for natural gas & electricity slipped 0.3% (-11.7% y/y).

Food & beverage prices also provided some price relief with a 0.2% decline which was the fifth this year. That lowered the y/y increase to 1.0% which was the lowest since late-2002 and down from the peak 6.1% rate of increase last fall. Recent weakness has been led by lower dairy prices (-9.7% y/y) and lower fruit & vegetable (-3.4% y/y) prices. Prices for meats, poultry & fish also fell by 1.7% y/y while cereals & bakery product prices rose just 1.2%.

The CPI less food & energy also has been well behaved. The expected 0.1% July increase slowed the y/y gain to 1.6% which was its least since early-2004. Of some note, however, is that prices increased at an accelerated 2.1% rate since December of last year. That's only slightly below the 2.3% rates of increase during the last two years.

This year, core goods prices indeed have firmed some. They rose 0.2% last month and at a 3.8% annualized rate so far this year. That compares with little price change during the prior three years. Again, higher tobacco prices account for much of that acceleration. As taxes have been raised, prices jumped 2.2% last month and so far this year at a 49.8% annual rate. There also has been modest firming of prices elsewhere. Apparel prices posted a 0.6% increase and are up at a 3.9% rate this year after price declines which extend back to 1994 (no typo). Prices for new & used motor vehicles also seemed to strengthen despite an aggressive marketing campaign. They rose 0.3% last month and at a 4.1% rate this year. That compares with price deflation during the last two years. Continuing weak were prices for household furnishings & operation. They slipped 0.1% during July and the 0.5% YTD rate of increase about matches the gain during 2008.

The U.S. recession continued to lower the strength of core services prices. They were unchanged last month and have risen at just a 1.5% annual rate so far this year, half that in 2008 and nearly the  weakest since 1983. Weakness in the housing market accounts for much of that moderation. Last month, shelter prices fell 0.2% and they've risen at a just a 0.6% annual rate so far in 2009. Owners equivalent rent of primary residences, a measure not equivalent to other house price measures, dipped slightly during July and have risen at a 1.6% rate so far this year versus a 2.5% 2008 increase. Elsewhere, public transportation prices posted a 1.9% rebound last month after earlier declines but they're down at an 8.3% rate this year. Also firming last month were medical care services prices with a 0.3% increase and 3.6% YTD gain. Education costs have been firm. They are up at a 5.5% annual rate this year.

The chained CPI, which adjusts for shifts in consumption patterns, fell 0.2% during July while year-to-year prices fell 1.9%. Chained prices less food and energy were roughly unchanged last month for the third month in a row but the YTD change of 2.2% 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.