Inflation Watch: Headline And Core CPI Show Little Change

The Bureau of Labor Statistics released the CPI data for July this morning. Year-over-year unadjusted Headline CPI came in at 1.41%, which the BLS rounds to 1.4%, down from 1.66% last month (1.7% in the BLS record). Year-over year-Core CPI (ex Food and Energy) came in at 2.10%, down fractionally from 2.22%% (rounded to 2.2%) last month.

Here is the introduction from the BLS summary, which leads with the seasonally adjusted data:

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in July on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.4 percent before seasonal adjustment.

Major indexes posted small movements in July, with a 0.3 percent decline in the energy index offsetting 0.1 percent increases in the indexes for food and all items less food and energy. Within energy, declines in the indexes for electricity, natural gas, and fuel oil more than offset a small increase in the gasoline index. Within the food component, the food at home index was unchanged with major grocery store food group indexes mixed, while the food away from home index increased.

The index for all items less food and energy rose 0.1 percent in July, ending a streak of four consecutive 0.2 percent increases. The shelter index rose 0.1 percent for the second month in a row. The indexes for medical care, tobacco, household furnishings and operations, and apparel also increased, while the indexes for airline fares, used cars and trucks, recreation, and new vehicles all declined.

The 12-month change in the index for all items was 1.4 percent in July. This compares to 1.7 percent in June and is the smallest 12- month change since November 2010. The index for all items less food and energy rose 2.1 percent for the 12 months ending July, a slight decline from the 2.2 percent figure in June and its smallest increase since October 2011. More...

The Briefing.com month-over-month consensus forecast was 0.2% for Headline (versus 0.0% actual) and 0.2% Core (aove the 0.1% actual).

The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000.

On the next chart I've highlighted the 2% level, which is generally understood to be the Fed's target for core inflation. Here we see more easily see the widening spread between headline and core CPI since late 2010, a pattern that began changing last October as headline inflation declined while core continued to rise, although it has flattened out in 2012.

Federal Reserve policy, which focuses on core inflation, and especially the core Personal Consumption Expenditures (PCE), will see that the latest core CPI is fractionally above the target range, even though the more volatile headline inflation has fallen below two percent.