Weekly Economic Trends and Indicators
The Headlines:
The Bureau of Labor Statistics (BLS) recently reported that the consumer price index (CPI) decreased 0.4% in June after seasonal adjustment. Over the last twelve months, the CPI increased 3.5% before seasonal adjustment. This was the largest monthly decrease in the CPI since April 2020.
In another report, the BLS reported that the producer price index (PPI) for final demand decreased 0.3% in June after seasonal adjustment. Over the last twelve months, the index increased 5.5% before seasonal adjustment.
The Details:
By far the most important contributor to the decrease in the CPI was the energy sector, particularly gasoline. Gasoline prices fell 9.7% (seasonally adjusted) during the month. While this was a large decrease in prices in a single month, it comes after several months of large price increases. Gasoline prices increased 21.2% in March, 5.4% in April, and 7.0% in May.
However, gasoline was not the only commodity that saw its price decrease in June. Electricity prices fell 1.0%, used car and truck prices fell 0.2%, and apparel prices fell 0.6%. Food prices, on the other hand, increased 0.2% in June, the same as May’s increase.
Energy prices also led the way for the decrease in the PPI as the overall energy prices for producer fell 6.4%.
The Context:
Last month, we noted that the Federal Reserve Bank of Cleveland’s “nowcast” for the CPI was forecasting no change in the CPI for all items. Most analysts were predicting little change to the CPI as the lower gasoline prices were expected to offset any price increase throughout the rest of the economy. What was unexpected was the broader decrease in prices in some of the categories noted above.
If the CPI had indeed remained unchanged in June, it would have put the 12-month inflation rate under 4%, but just barely. The larger than expected decrease in June brought the 12-month rate all the way down to 3.5%, which has definitely been welcome news. Will it continue?
The Cleveland Fed’s nowcast for the July CPI (as of July 23) is for less than a 0.1% increase and about a 0.2% increase in the core CPI (excluding food and energy). However, the next Federal Open Market Committee meeting will happen next week—before July inflation data is released. After a brief dip in the probability of a policy rate increase following the June inflation news, the odds of a rate increase are nearly the same as a month ago at just under 30%. While some progress was made on the inflation front in June, continuing geopolitical uncertainty and the accompanying surge in oil prices in the last few days may undo some of that progress.
Next week: U.S. 2nd quarter GDP
