The Consumer Price Index is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. Why Investors Care
| Released on 8/15/07 For Jul 2007 | |||||||||||||||||||||||||
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Highlights
Consumer price inflation in July softened overall in July while core inflation held steady. The overall consumer price index in July posted a 0.1 percent increase in July, following a 0.2 percent rise in June, and matching the consensus expectation for a 0.1 percent rise in the overall CPI. Meanwhile, the core CPI inflation rate was unchanged with a 0.2 percent increase in July, following a 0.2 percent rise in June, and equaling expectations.
Year-on-year, the overall CPI was stood at 2.4 percent in July, compared to 2.7 percent in June. The core rate was unchanged in July at up 2.2 percent on a year-on-year basis.
Energy prices actually helped the overall CPI in July. In the non-expenditure category for energy, prices fell 1.0 percent, following a 0.5 percent decline the month before. For July, gasoline prices were down 1.7 percent. Food price inflation moderated to a 0.3 percent rise in July from 0.5 percent in June.
Expenditure categories showing weakness were transportation, down 0.3 percent (inclusive of gasoline); recreation, down 0.1 percent; and "other," flat. Upward price pressure was seen in medical care, up 0.6 percent; apparel, up 0.4 percent after a string of declines; and food & beverages, up 0.3 percent. Housing and also education & communication both were moderate with 0.2 percent gains for the month.
The core rate held steady in July on a rounded basis and even with greater decimal detail. However, the unrounded numbers were on the high side of 0.2 percent for both of the latest months. On an unrounded basis, the core CPI rose 0.23618 in July, following a 0.23244 percent boost in June. The rise was 0.14978 percent in May.
Today's report shows some reversal of energy costs, helping to bring overall inflation down. The core rate is moderate but may still be above the Fed's preferences. Year-on-year, the core is at 2.2 percent and the unrounded core numbers show the marginal annualized pace even higher than year-on-year. Still, bonds and equities should like the numbers. The dollar may dip on the belief that U.S. interest rates will be coming down. But today's core still fits the Fed's "definition" that any improvement in inflation is not yet convincing.
The consumer price index slowed to a 0.2 percent increase in June, following a 0.7 percent surge in May. The core CPI inflation rate firmed slightly with a 0.2 percent increase in June, following a 0.1 percent rise in May. For July, we may actually see a very soft overall number as gasoline prices have come down while crude oil prices have risen. More of that effect may be in August than July but enough may have occurred in July to have impacted the overall numbers.
CPI Consensus Forecast for July 07: +0.1 percent
Range: -0.1 to +0.2 percent
CPI ex food & energy Consensus Forecast for July 07: +0.2 percent
Range: +0.1 to +0.2 percent
![[Chart]](chart.gif)
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It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the CPI are mainly volatile because of sharp fluctuations in food and energy prices. The core CPI eliminates the sharper fluctuations. |
![[Chart]](chart_1.gif)
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Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core CPI does not fluctuate as much as the total CPI. |
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