DAILY ECONOMIC DATA

CPI increases 0.1% in July

The Consumer Price Index (CPI) increased 0.1% in July, as the consensus expected. The CPI is up 2.4% versus a year ago.
Energy prices declined 1.0% in July. Excluding food and energy, the core CPI was up 0.2%, as the consensus expected. The core CPI is up 2.2% versus a year ago.

The rise in the CPI was mostly due to housing, food away from home (restaurant prices), and medical care.

Real average hourly earnings – the cash earnings of production workers – increased 0.2% and are up 1.7% in the past year.

Implications: Inflation is still a problem. Despite a year-to-year increase of 2.4%, the CPI is up at a 4.9% annual rate in the past six months. During the next several months, comparisons to last year are going to escalate from 2.4% at present up to about 4%. Although the core CPI is up only 2.2% versus last year this figure excludes food and energy, where inflation has been the worst. The chart to the right shows that the five-year trend in inflation has risen substantially since late 2001. Meanwhile, the relatively low 0.1% overall CPI inflation figure for July suggests real (inflation adjusted) consumption is growing at about a 2.5% rate in the third quarter, adding some upside risk to our forecast of 3% real GDP growth in the third quarter.