June’s CPI Research Notes

by Jim Baird on July 15, 2011

Energy prices decline for second month; core inflation edges higher

Falling energy prices were a welcome development for consumers, offsetting other price increases for the month, as the Consumer Price Index fell by 0.2% in June, the index’s first monthly decrease since June 2010.

The one-year change in CPI was 3.6% in June, up fractionally from the prior month.  Core prices, however, rose 0.3%, suggesting that underlying inflationary pressures are still increasing.  Nonetheless, at 1.6% year-over-year, the core measure remains in a relatively safe zone.

Slower global growth, some easing of tensions in the Middle East and North Africa, and the transitory effects of the release of stock from the Strategic Petroleum Reserve contributed to the decline in oil prices.   Oil prices have moved higher in July, but with growth still challenged, further increases appear likely to remain relatively contained in the absence of negative geopolitical developments.

The easing in the rate of food and energy price hikes in recent months is a welcome development and provides relief to weary consumers.  The weak labor market, depressed housing market, and general uncertainty about the outlook for the economy all continue to weigh heavily on consumer confidence, keeping a lid on spending growth. 

The economy remains on an undistinguishable path, eking out just enough growth to keep the U.S. off the road to a double dip thus far.  While consumers are far from the pre-crisis salad days, sustained easing in concerns about inflation would provide an incremental boost.

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