Annual U.S. CPI Rate Soars to 5%
Annual U.S. CPI Rate Soars to 5%
Today’s consumer price report for June showed a sizeable monthly increase of 1.1%, considerably higher than market expectations of a 0.7% rise. The increase was almost double the 0.6% rise recorded in May. This increase sent the year-over-year rate soaring to 5% from 4.2% in May. Excluding the impact of the volatile energy and food components, core prices rose a more modest 0.3% in the month, although this was above market expectations of a 0.2% rise. The year-over-year increase in core prices rose to 2.4% from 2.3% in May. For the last nine months, core inflation has been fluctuating within a range of 2.2% to 2.5%.
The increase in overall prices was once again pushed higher by the energy component, which was up 6.6% in the month reflecting a jump of 10.1% in gasoline prices. Food prices also applied some upward pressure, rising 0.8%. Within the core component, upward pressure was clearly evident in air fares, which rose 4.5% reflecting the impact of rising fuel costs. Solid gains were also recorded for educational services, up 0.5%, and a surprising 0.3% rise in shelter costs. More moderate increases were recorded for apparel prices, up 0.1%, and for new motor vehicles, up 0.2%. It is of note that the increase in auto prices is the first in seven months.
While energy prices continue to pressure the overall inflation rate ever higher, there is only limited evidence to date that this is feeding through into core inflation. However, the Fed will likely remain wary about these rising headline figures starting to affect inflationary expectations. That said, comments to the Senate by Fed Chairman Bernanke, which is likely to be reiterated in testimony to the House today, indicate the re-emergence of concern about the near-term outlook for growth.
The recent deterioration in financial markets and attendant credit tightening present another restraining factor on growth on top of declining housing and high energy prices. These opposing risks of rising inflation and slowing growth will likely keep the Fed in data-watching mode, holding Fed funds steady at 2.00% until it becomes clearer which risk proves to be the most pressing.
RBC Financial Group
http://www.rbc.com
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
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