Consumer Price Index Down in June


The steady rise of the Consumer Price Index (CPI) ended in June, ending an eleven-month run of gains that started last July. The Bureau of Labor Statistics (BLS) reported a 0.2% (SA) rate of decline in the CPI for All Urban Consumers in June. Over the last 12 months, the all-items index has increased 3.6% (NSA).

Gasoline prices had been driving the strong growth in the CPI for much of the past year. However, their steep rise ended in May, with a moderate 2.0% decline in the gasoline price index. The observed drop in June was more pronounced, contracting 6.8%, as the full impact of the recent oil price decline flowed through to prices at the pump. Oil prices peaked in the last week of April and have since settled around 15% lower. Nonetheless,  even with these recent declines, the gasoline index remains 35.6% above its level in June 2010.

Food prices edged up further in June, increasing 0.2% on a month-to-month basis. Major grocery store food groups were mixed, with the indexes for fruit and vegetables, meats and eggs declining, while other major grocery store food group indexes (such as, cereals and bakery products +0.6%, dairy products +0.5%) all increased. Overall, the food index has trended steadily higher since the beginning of the year, leaving it 3.7% above its June 2010 level.

Core CPI, which excludes the volatile food and energy prices, continued its steady rise, with a 0.3% gain in June. This is the seventeenth consecutive monthly increase for core CPI, although the rates of growth over this time period have been relatively modest, generally falling within a range of 0.1% and 0.3%. The clothing, and used and new vehicles indexes were the main contributors to the core CPI increase in June, registering gains of 1.4%, 1.6% and 0.6%, respectively. Overall, with a year-over-year increase of 1.6%, the core CPI remains indicative of only modest levels of inflation.

The shelter index, which serves as a proxy for housing’s component of the CPI, rose 0.2% in June, marking its ninth monthly increase in a row. Owners’ equivalent rent and rent of primary residence maintained their steady pace of growth, up 0.2% and 0.1%, respectively. In the past year, these subcomponents have seen only modest gains, up 1.0% and 1.4%, respectively.

With energy prices expected to remain relatively stable at current levels for the remainder of 2011, we expect the CPI for All Urban Consumers to settle back into more moderate growth during the second half of the year, slowing to an annualized rate of 3.0% in the third quarter and 1.5% in the fourth quarter. Inflation is expected to remain moderate through 2012, with an annual rate of growth in the CPI of 1.9%.

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