Core CPI up a Modest 1.7 Percent for the Third Month in a Row

By Robert Hughes

The Consumer Price Index rose 0.1 percent in July and is up 1.7 percent from a year ago. The volatile food and energy components had contrasting results, with food prices up 0.2 percent while energy prices fell 0.1 percent. In the food category, food-store prices rose 0.2 percent and are up 0.3 percent from a year ago while restaurant prices rose 0.2 percent in July and are up 2.1 percent over the past year.

Among the energy components’ prices in July, commodities were unchanged while services fell 0.2 percent. Over the past year, energy-goods prices have increased 3.1 percent while energy-services prices have gained 3.6 percent.

The measure excluding food and energy, the core CPI, rose 0.1 percent in July, as in the two previous months, and is up 1.7 percent from a year ago. The core CPI’s annualized changes have posted steady readings of 1.7 percent over that period. Within the core, goods prices fell for the fifth straight month, declining 0.1 percent in July. Core-goods prices are off 0.6 percent from a year ago. Core-goods prices continue to be essentially flat, falling at a 0.5 percent annual rate over the past 5 years and rising at a meager 0.1 percent annualized rate over the past 20 years.

Upward pressures on core consumer prices are almost entirely in core services. Core-services prices rose 0.2 percent in July, the third consecutive 0.2 percent increase, and are up 2.4 percent from a year ago. Over the past 20 years, core-services prices rose at a 2.7 percent annual pace. Over the past 5- and 20-year periods, the main contributors to services-prices increases have been shelter, medical care — particularly hospitals — and education. More recently, physicians’ services — a component of medical-care services — and education have experienced marked decelerations in price increases and have contributed significantly to the deceleration of the overall core CPI. Communication services, phone services, and internet services have also been major contributors to the slowing pace in core services. Taken together, these prices are down 6.3 percent from a year ago, led by an 8.9 percent drop in telephone services. Internet-services prices are off 1.3 percent over the past year.

Price pressures vary widely among the various parts of the economy, but overall price increases have decelerated over the past few months and remain quite modest by historical measures.

 

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.