CPI: Downside Miss But Components Suggest Some Stabilization

Bottom Line: CPI missed estimates in June at both the headline and core level as prices for cars, clothing, and airfare fell. Core CPI has risen just 1% annualized over the last 3 months and 1.3% over the last 6 months, sharply below 2016's pace of 2.2%. However, the trend towards decelerating price gains in owner's equivalent rent" (an estimate of the cost of shelter), and medical care, as well as the declines in cell phone service prices, have stabilized a bit. These components were major drivers of the downward pressure in CPI in recent months and now appear to be stabilizing around recent levels, suggesting the potential for some stabilization or even a modest uptick in CPI going forward. The CPI was UNCHANGED in June, compared with market expectations for an increase of 0.1%.

• Food prices declined by 0.0% while energy prices fell by 1.6%.
• Prices for gasoline fell by 2.8% while prices for fuel oil declined by 1.4%, prices for electricity slipped by 0.6%, and prices for natural gas fell by 0.2%. Energy prices are now 2.4% ABOVE their year ago level..

Overall consumer prices are now 1.6% ABOVE their year ago level; in June 2016, consumer prices were 1.0% ABOVE their year ago level. The Core CPI ROSE by 0.1%, compared with market expectations for an increase of 0.2%.

• Prices for commodities excluding food and energy commodities fell by 0.1%. Gains in medical care (+0.7%), alcoholic beverages (+0.2%), were offset by declines in used cars & trucks (-0.7%), tobacco (-0.4%).
• Prices for services excluding energy services rose 0.2% with moderate increase in owner's equivalent rent (+0.3%), medical care services (+0.3%), and shelter (+0.2%).

Core consumer prices are now 1.7% ABOVE their year ago level; in June 2016, consumer prices were 2.2% ABOVE their year ago level.