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Core Prices Edge Up in July

The headline CPI jumped up at an annualized rate of 6.2 percent in July, surprising forecasters' expectations to the upside. Over the past 12 months the CPI is up 3.6 percent, somewhat above its longer-term (5-year) annualized growth rate of 2.1 percent. Increases in food at home (up 7.2 percent) and a rebound in motor fuel prices (up 72 percent after falling 56 percent in June) accounted for a little over half of the overall gain.

Excluding food and energy prices, the core CPI rose 2.7 percent in July. Over the past three months, the core CPI is trending at an annualized growth rate of 3.1 percent, above its 12-month growth rate of 1.8 percent. Measures of underlying inflation produced by the Federal Reserve Bank of Cleveland—the median and 16 percent trimmed-mean CPI—were also somewhat elevated in July relative to their longer-term trends. The median CPI rose 2.9 percent, while the 16 percent trimmed-mean CPI jumped up 3.3 percent.

July Price Statistics

Percent change, last
1 mo.a 3 mo.a 6 mo.a 12 mo. 5 yr.a 2010 average
Consumer Price Index
All items 6.2 1.8 4.0 3.6 2.1 2.4
Less food and energy 2.7 3.1 2.6 1.8 1.8 0.6
Medianb 2.9 2.2 2.2 1.8 2.1 0.7
16% trimmed meanb 3.3 2.4 2.9 2.1 2.1 0.8
Sticky pricec 2.1 1.6 1.6 1.8 1.5 0.9
Flexible pricec 16.6 1.9 9.4 8.8 2.6 3.5

a. Annualized.
b. Calculated by the Federal Reserve Bank of Cleveland.
c. Author's calculations.
Source: Bureau of Labor Statistics.

There were some interesting relative price changes in July. New-auto prices rose just 1.8 percent in July, after having reached double-digit increases over the past three months, perhaps as supply disruptions abated. However, used-car prices continued to increase sharply, rising 9.3 percent during the month and 14.7 percent over the past three months.

Apparel prices followed up June's outsized 18.3 percent spike by jumping another 16.1 percent in July, in large part due to a whopping 53 percent spike in infants' and toddlers' apparel. Much of the increase seems to be due to the seasonal factor. Over the past three months, the increase in apparel categories has been entirely in the seasonal factor: The seasonally adjusted apparel index rose 16.4 percent over that period, while the not-seasonally-adjusted index actually fell a sharp 10.8 percent.

Also, some discretionary spending categories (such as personal care and recreation) decreased in July, continuing their recent subdued trends. In fact, prices for personal care goods and services are up just 0.6 percent over the past year, while recreation prices have fallen 0.2 percent.

Figure 2. CPI Component Price Change Distribution

Rents bolstered the increase in the core CPI, as owners' equivalent rent (OER) and rent of primary residence rose slightly more than 3.0 percent in July. In fact, this is the first increase above 3.0 percent for either series since November 2008. Still, over the past year, rent of primary residence is up just 1.6 percent, while OER is up a mere 1.2 percent.

Figure 3. Rents

A glance at the longer-term (12-month) trends in a few measures of underlying inflation suggests that the inflation trend has moved up from its recent cyclical lows during mid-2010. The 16 percent trimmed-mean is up 2.1 percent over the past year, while the median CPI is up 1.8 percent. A slightly more subdued signal of future inflation is coming from the sticky CPI, which increased 2.1 percent in July but is up only 1.5 percent over the past year.

Figure 4. Alternative Price Statistics

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