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Brent Meyer |

Economist

Brent Meyer

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

08.11.07

Economic Trends

June Price Statistics

Michael F. Bryan and Brent Meyer

The Consumer Price Index (CPI) increased 2.3 percent (annualized rate) in June, moderating significantly from May’s 8.4 percent surge and bringing the headline number under its 12-month percent change. The CPI excluding food and energy (core CPI) increased from 1.8 percent (annualized) in May to 2.8 percent (annualized) in June. This marks the first time that the core CPI has been above the headline number since January 2007. The same is true for the Producer Price Index (PPI), as finished goods less food and energy increased 3.8 percent (annualized), while the headline PPI fell 2.8 percent (annualized).

June Price Statistics

    Percent change, last
    1mo.a 3mo.a 6mo.a 12mo. 5yr.a 2006 avg.
Consumer prices            
  All items
2.3
5.2
5.0
2.7
3.0
2.6
  Less food and energy
2.8
2.3
2.3
2.2
2.1
2.6
  Medianb
2.5
1.9
2.5
3.0
2.6
3.6
  16% trimmed meanb
2.1
2.3
2.8
2.6
2.3
2.7
Producer prices
  Finished goods
2.8
5.7
6.4
3.2
3.7
1.6
  Less food and energy
3.8
2.0
2.3
1.8
1.5
2.1

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

An investigation into the distribution of retail price changes is also suggestive of a downswing in the underlying trajectory of inflation. Only 44 percent of the components included in the overall CPI rose at a rate exceeding 3 percent in June, compared with 52 percent on average over the last 12 months. On the other side of the distribution, 39 percent of CPI components grew less than 1 percent for the month. During the 12 previous months, roughly 30 percent of the index’s components grew less than 1 percent.

The longer-run trend in inflation, as measured by the 12-month percent change in the CPI, core CPI, and the 16% trimmed-mean CPI, remained between 2¼ percent and 2¾ percent. The median CPI, which tracks the price movements of the middle component in the monthly price distribution, continues to decline, but at 3.0 percent (annualized) it is still above its five-year average of 2.6 percent. Inflation in core service prices continued to stay in the 3 percent to 4 percent range, while core goods (commodities less food and energy commodities) have been trending down since the third quarter of 2006 and are now 0.8 percent below last year’s level.

July’s average household expectations for short-run inflation held steady at 4.2 percent. Longer-term (5 to 10 years out) expectations have been holding just above the 10-year average of 3.4 percent since April and stand a 3.6 currently.

Professional forecasters (Blue Chip Panel of economists) predict that headline inflation will moderate over the short to medium term. Toward the end of 2008, the Blue Chip forecast has CPI inflation just north of 2 percent.