The Bureau of Labor Statistics said that consumer prices increased 0.1 percent in July, its slowest pace in 6 months. Nonetheless, food prices continue to rise, up 0.4 percent in July. The price of food purchased for the home has risen 2.2 percent year-to-date, or 2.5 percent in the past 12 months. The bulk of this increase has come from meats, eggs, shellfish and fresh produce. For instance, consumers have spent 9.3 percent more year-over-year on meats (e.g., beef and veal, pork, poultry and fish and seafood), with an increase of 0.4 percent for the month, mirroring the headline figure.
In contrast, energy prices have eased, mirroring producer price data released last week. Consumers have benefited from lower prices for natural gas and petroleum. For instance, the cost of West Texas intermediate crude oil declined from a recent peak of $107.95 per barrel on June 20 to $98.23 on July 31. The consumer price index data suggest that energy prices fell 0.3 percent in July. At the same time, energy expenses have risen 1.2 percent over the past 12 months, largely from higher costs for the home.
Excluding food and energy, consumer prices were up 0.1 percent, matching the increase seen the month before. Higher prices for apparel, medical care, new motor vehicles and shelter were somewhat offset by reduced costs for transportation services and used cars and trucks.
Overall, the consumer price index rose 2.0 percent from July 2013 to July 2014, its fourth straight month with an inflation rate of 2.0 percent or more. With that said, it represents an easing from the 2.1 percent paces seen in May and June. The core inflation rate – which excludes food and energy – has been 1.9 percent for three consecutive months.
While core pricing pressures have accelerated from earlier in the year, they appear to be stabilizing somewhat this summer. That should be good news for the Federal Reserve, which has targeted 2.0 percent in its stated goals. Still, the Federal Open Market Committee will closely watch to see how pricing pressures develop in the coming months, particularly as it prepares to start normalizing short-term rates in early 2015.
Chad Moutray is the chief economist, National Association of Manufacturers.