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CPI: Flying Prices Lose Altitude

August 11, 2021
Bottom Line:  Core CPI came in a touch lower than expected as airfares declined slightly.  Other core components continued to run hot, though.  Consumer prices are now 5.3% above their year-ago level.  Meanwhile, core consumer prices rose moderately and are 4.2% above their year-ago level.  Vehicle prices continued to climb, with new cars up 1.7% on the month.   Housing accounts for 40% of total CPI and just over half of Core CPI, with Owner's equivalent rent (OER) dominating the category. And OER is accelerating moderately -- 3.77% annualized in the last 3 months vs. 3.3% and 2.4% in the last 6- and 12-months, respectively. Based on historical time lags, most of the impact from higher single-family home prices won't be felt until early 2022 CPI readings. 
Overall, the pandemic-related categories continued to drive the core CPI increases.  However, as these pandemic effects linger, we are getting closer to when home price lags should start to bolster OER readings, which are already accelerating just a touch.  Looking through the volatility of pandemic-related categories, there are plenty of indications that core CPI components will continue to run above the Fed's 2% target.

by 0.47% in July, compared with market expectations for an increase of 0.50%.     
  • Food prices increased by 0.72% while energy prices rose by 1.6%.  
  • Prices for gasoline rose by 2.4% while prices for fuel oil increased by 0.6%, prices for electricity climbed by 0.4%, and prices for natural gas rose by 2.2%.  Energy prices are now 23.6% ABOVE their year-ago level.
Overall consumer prices are now 5.3% ABOVE their year-ago level; in July 2020, consumer prices were 1.0% ABOVE their year-ago level.
The Core CPI
ROSE by 0.33%, compared with market expectations for an increase of 0.40%.  
  • Prices for commodities excluding food and energy commodities rose by 0.5%.
  • Gains in new vehicles (+1.7%), tobacco (+0.5%),  were partially offset by declines in airfare prices (-.1%).
  • Prices for services excluding energy services rose 0.3% with a moderate increase in shelter (+0.4%), owner's equivalent rent (+0.3%), and medical care services (+0.3%).
Core consumer prices are now 4.2% ABOVE their year-ago level; in July 2020, consumer prices were 1.6% ABOVE their year-ago level.