The Consumer Price Index (CPI-U) rose 0.3% in June versus Consensus expectations for a 0.2% rise. The upside surprise was fueled by a 2.6% gain in energy prices.

Seasonally adjusted gasoline prices jumped 3.1%, about double the not seasonally adjusted rise. Even that increase was somewhat surprising given that the weekly tracking of retail gasoline prices indicated a m/m decline of 0.7%. So far in July average gasoline prices are 3.2% below the June average at $1.91 per gallon.

Core consumer prices rose a less than expected 0.1%. The shortfall was the result of no change in the prices of core consumer goods. New & used vehicle prices fell 0.1% (-3.5% y/y) and home furnishings prices rose a modest 0.1% (-0.5% y/y). Apparel prices rose 0.2% (0.5% y/y) and medical care commodities prices ticked 0.1% (2.9% Y/Y) higher.

Core service prices rose 0.2% for the second consecutive month. Shelter costs rose a modest 0.1% (2.9% y/y) and public transportation prices were unchanged after a 1.3% May decline (-0.9% y/y). Medical care services prices rose 0.4% (5.1% y/y), the strongest increase in three months.

The chained CPI which adjusts for shifts in consumer buying behavior rose 0.3%. It is similar to the PCE price deflator. The core chain price measure was unchanged.

The University of Michigan’s consumer sentiment index for mid-July edged up to 96.0 from the June reading of95.6. Consensus expectations had been for a larger gain to 97.0.

During the last ten years there has been a 75% correlation between the level of consumer sentiment and the y/y change in real PCE.

Improvement in the expectations sub-index to 90.4 followed the sharp m/m rise in June. The index of current economic conditions fell 2.0% versus June.

The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.