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Brent Meyer |

Economist

Brent Meyer

Brent Meyer is a former economist of the Federal Reserve Bank of Cleveland.

07.22.09

Economic Trends

June Price Statistics

Brent Meyer

The CPI jumped up 9.3 percent (annualized rate) in June, almost entirely because of a large spike in motor fuel (up 569 percent at an annualized rate). According to the data release, that spike in motor fuel accounted for over 80 percent of the overall increase in the CPI. However, even with this month’s jump, the CPI is down 1.4 percent over the past year.

June Price Statistics

  Percent change, last
  1 mo.a  3 mo.a  6 mo.a  12 mo.5 yr.a  2008 average
Consumer Price Index
 All items
9.3
3.3
2.7
−1.4
2.6
0.3
 Less food and energy
2.4
2.4
2.3
1.7
2.2
1.8
 Medianb
0.8
1.2
1.7
2.1
2.7
2.9
 16% trimmed meanb
2.0
1.3
1.5
1.6
2.5
2.7
Producer Price Index
 Finished goods
23.3
9.5
4.2
−4.3
3.1
0.2
 Less food and energy
6.5
2.1
2.0
3.4
2.4
4.3

a. Annualized.
b. Calculated by the Federal Reserve Bank of Cleveland.
Sources: U.S. Department of Labor and Bureau of Labor Statistics.

The core CPI rose 2.4 percent in June, following a 1.7 percent increase in May and outpacing most of its longer-term trends. Turning to the two measures of underlying inflation produced by the Federal Reserve Bank of Cleveland, the median CPI increased 0.8 percent, while the 16-percent trimmed mean CPI rose 2.0 percent in June. Over the past three months, the median has averaged 1.2 percent and the trimmed mean 1.3 percent. Over the past year, they are trending between 1.6 percent and 2.1 percent.

Digging a little deeper into the report reveals a couple of curious price movements. First, apparel prices exhibited an unusual seasonal pattern, jumping 8.8 percent on a seasonally adjusted basis, while falling 25.5 percent on a not seasonally adjusted basis. Perhaps the story here is that the severity of the business cycle has already depressed clothing prices (and some other items as well, such as recreation), negating any of the usual “sales” during this time of year. Said another way, apparel prices have already been slashed to “rock-bottom prices” due to the recession, but the seasonal adjustment still takes place even though there may not be much of a “season” left to adjust for—leading to artificial price increases. Also, just as in the June producer price index, prices of new vehicles rose 8.2 percent in June and are actually up 0.9 percent over the past year (which doesn't make intuitive sense given the current environment, and may be another result of ill-timed seasonal effects).

The underlying component price-change distribution in June shows a substantial amount of weight in the tails. Nearly 52 percent (by expenditure weight) of the consumer market basket was in the extreme tails (rising in excess of 5 percent or exhibiting price decreases). Moreover, roughly 30 percent of the index rose at rates between 0 percent and 1 percent in June, leaving just 10 percent of the overall index between 1 percent and 3 percent—a broad range that is usually associated with price stability.

One-year average inflation expectations from the University of Michigan’s preliminary report of its Survey of Consumers ticked down to 3.8 percent in July, from 3.9 percent in June. Longer-term (5-to-10 year ahead) average expectations jumped up to 3.7 percent from 3.2 percent in June (most likely biased by a few outliers), though the median only rose by 0.1 percentage point to 3.1 percent. The variance in the long-run responses was much wider than the average since 2000 (14 compared to 8.7), outlining the relative uncertainty survey respondents have about the inflation outlook.