CPI Growth Moderates in July

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Today's Morning Report highlights the inflation (or deflation) data release for July. Energy played a big role in the Headline Consumer Price Index as usual, but Core CPI moderated to just +0.1% growth month-to-month.

CPI Growth Moderates in July

Economists were looking for a 0.2% increase in the seasonally adjusted Core CPI Index (excludes food and energy prices), according to Bloomberg's survey. The lesser growth result of +0.1% was a pleasant surprise, and offers investors reason to push stocks higher in light summer trading volume Friday.

Headline CPI held steady, as the energy component moderated from the previous month's strong gain. The Energy Index fell 0.4% in July, after posting a 7.4% gain the month before. You can see why the Headline CPI swings so wildly, with energy prices so volatile over recent times. The Food Component of the Headline figure also moderated in July, by 0.3%, but all items ex-food and energy increased.

There was one interesting aspect to the Headline Index we want to point out here. Natural Gas prices closed some of the gap between the energy resource and its petroleum cousin. The Nat Gas component of the measure gained, contrasting against the fall in oil and distillates.

Another trend worth noting is the sharp drop in Lodging Away from Home, which saw a 2.1% price decline in July. This may be yet another warning flag for nonresidential segments of real estate and for the Lodging and Hospitality sector.

On a year-to-year basis, which smooths out monthly volatility a bit, the data shows a 1.9% Headline CPI decline versus a 1.6% Core CPI increase (down from 1.7% in June). Thus, we can say that inflation is not a threat this month, but that says little for this time next year...


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