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July Price Statistics

The CPI was virtually unchanged in July, rising at an annualized rate of only 0.1 percent, as slight decreases in food and energy components were roughly balanced out by a 1.1 percent increase in the core CPI. Over the past 12 months, the CPI has fallen 2.1 percent (its lowest value since 1949), while the core CPI is up 1.5 percent. Price increases in new vehicles (up 5.9 percent), tobacco (up 30.3 percent), medical care services (up 3.4 percent), and women's and girls' apparel (up 15.8 percent) contributed to the increase in the core CPI. There was also a curious jump in airline fares. They were up 28.5 percent in July, after 10 consecutive monthly decreases.

As mentioned last month, the severity of the business cycle seems to have "trumped" the usual seasonal adjustment for apparel prices (and perhaps new vehicle prices as well), leading to an overstatement in seasonally adjusted price increases for those goods. This, in turn, may be causing a slight upward bias to core CPI. It is also worth noting that both owner's equivalent rent (OER) and rent of primary residence were nearly unchanged and actually fell ever so slightly at an annualized rate, decreasing 0.3 percent and 0.4 percent, respectively. OER has turned negative in only one other instance since 1983, in September 1992 when it fell 0.8 percent. The 12-month growth rate in OER is at a series low of 1.7 percent.

July 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 0.1 3.4 2.2 -2.1 2.6 0.3
Less food and energy 1.1 1.7 2.1 1.5 2.2 1.8
Medianb 0.2 0.5 1.3 1.8 2.7 2.9
16% trimmed meanb 0.2 1.1 1.2 1.1 2.5 2.7
Producer Price Index
Finished goods -9.9 4.6 0.6 -6.8 3.1 0.2
Less food and energy -1.4 1.4 1.3 2.6 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.

Both of the measures of underlying inflation produced by the Federal Reserve Bank of Cleveland - the median CPI and 16 percent trimmed-mean CPI - rose just 0.2 percent in July, rising at slower rates than their all of their respective longer-term trends. Over the past 12 months, the 16 percent trimmed-mean is up only 1.1 percent, while the median has increased 1.8 percent.

CPI, Core CPI, and Trimmed-Mean CPI Measures

Nearly half of the overall index (by expenditure weight) exhibited price decreases in July. Excluding food and energy items, that percentage declined only to 34.1 percent. On the other side of the distribution, just 15 percent of the consumer market basket rose in excess of 5 percent, leaving just 18 percent of the index in the broad "sweet-spot" between 1 percent and 3 percent. Underscoring the growing relative softness in the component price-change distribution, the share of the consumer market basket that is exhibiting monthly price decreases has grown from just above 20 percent in January to near 50 percent in July. On the other tail of the distribution, the share of the market basket rising at rates in excess of 5 percent has been relatively stable lately, averaging roughly 17 percent since the beginning of the year.

CPI Component Price Change Distribution

Both one-year-ahead and longer-term (5 to 10 years ahead) average inflation expectations from the University of Michigan's Survey of Consumers ticked down in early August. One-year-ahead expectations slipped down from 3.6 percent to 2.9 percent, while longer-term expectations decreased from 3.4 percent in July to 3.2 percent. While short-term expectations have bounced around over the past year (likely following food and energy prices), it is not clear that longer-term expectations have shifted in any meaningful way recently, as the series has remained close to its five-year average of 3.4 percent.

Household Inflation Expectations

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