Consumer prices were flat in June according to the Bureau of Labor Statistics. Energy prices dropped 1.4 percent, building on the 1.7 percent and 4.3 percent declines in April and May. Food prices rose 0.2 percent for the month, or 2.7 percent year-over year. Looking forward, the drought is likely to push corn and other prices higher.
Core inflation, which excludes food and energy costs, rose 0.2 percent in June, essentially the same rate that it has been since March. On an annual basis, overall and core inflation are 1.7 percent and 2.2 percent, respectively. Whereas total price pressures have moderated with lower petroleum prices (e.g., year-over-year CPI was up 3.0 percent in December), core inflationary levels have been in the 2.2 to 2.3 percent range since November.
Outside of food and energy, the largest monthly price increases were seen in apparel, medical care services, and alcoholic beverages. Looking at annual rates of change, the sectors with the greatest gains include medical care services (up 4.3 percent), apparel (up 3.9 percent), motor vehicle insurance (up 3.2 percent), medical care commodities (up 2.9 percent), and rent of primary residence (up 2.7 percent).
Overall, these numbers mirror the release of producer price data last week. Core prices continue to rise modestly, with the core inflation running at the 2.2 percent rate for the past few months.
This is slightly higher than the Federal Reserve Board’s stated goal of 2 percent or less. Yet, the Fed remains more concerned about economic growth right now than with inflation, making a tightening of monetary policy unlikely. Instead, the Fed is expected to maintain its current accommodative policies, with some analysts pushing for additional stimulus. With inflationary pressures in check, the latter is possible; although, I still feel that the Federal Open Market Committee will stick with existing initiatives, forgoing another round of quantitative easing. But I could be wrong, of course.
Chad Moutray is chief economist, National Association of Manufacturers.