Consumer prices increased 0.5 percent in June, its fastest pace since February. The February comparison is an appropriate one, as the primary driver of increased prices in that month was higher gasoline prices, much as it was in June. The price of gasoline rose 6.3 percent in June, spurred on by higher petroleum costs. The average cost of West Texas intermediate (WTI) crude ended May at $91.93 per barrel, but by the end of June, that average was $96.36 a barrel. Of particular note here is that this data pre-dates the recent rise, with WTI approaching $107 per barrel this morning, suggesting further consumer price pressures in July.
Food prices were up more modestly, up 0.2 percent in June, reversing the 0.1 percent decline in May. Through the first six months of 2013, there has been very little food cost inflation, up 0.5 percent over that time frame. June’s higher food prices were mainly for bakery products, meat, milk, and some fresh vegetables. The cost of food purchased away from home (e.g., restaurants and bars) rose 0.2 percent and has risen slightly faster over the past 12 months than food purchased for the home, up 2.2 percent versus 0.9 percent year-over-year.
Core inflation, which excludes food and energy costs, was up 0.2 percent for the month. Over the past year, the core inflation rate was 1.6 percent year-over-year, representing a deceleration from earlier in the year. The pace had been 2.0 percent as recently as February.
Overall, these numbers suggest that inflationary concerns, particularly at the core level, remain under control, at least for now. This allows the Federal Reserve to pursue “highly accommodative” policies, even as it seeks to “taper” (or slow) its asset purchases later this year. With core inflation below the Fed’s stated target of 2 percent, the Federal Open Market Committee is free to focus on stimulating the economy. Look for Fed Chairman Ben Bernanke to reiterate this during his semi-annual monetary policy testimony before Congress tomorrow and Thursday.
With that said, it will be interesting to see how higher petroleum costs impact these data moving forward. Manufacturers have been fortunate to have lessened pricing pressures over much of the past year, according to the latest producer price data, but increased energy costs could spur raw material prices higher, particularly if the current WTI prices are sustained.
Chad Moutray is the chief economist, National Association of Manufacturers.