The Consumer Price Index is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. Why Investors Care
| Released on 7/16/08 For Jun 2008 | |||||||||||||||||||||||||
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Highlights
Consumer price inflation got even hotter in June. The headline CPI soared 1.1 percent, following a 0.6 percent surge the month before. June's boost was above the consensus forecast for a 0.8 percent jump. The core rate firmed to a 0.3 percent increase after a 0.2 percent rise in May. The market had forecast a 0.2 percent increase.
Once again, energy led the surge in overall inflation with a monthly 6.6 percent increase, following a 4.4 percent gain in May. Gasoline was up a monthly 10.1 percent after rising 5.7 percent in May. Food inflation accelerated sharply with a 0.8 percent jump in June, following 0.3 percent increase the month before.
There are signs that the core rate is heating up, too. Recreation and education & communication were up 0.5 percent and 0.4 percent, respectively. Housing was up 0.5 percent also but much of the increase was energy related as the shelter subcomponent was a more moderate 0.3 percent in the latest month. On the soft side were apparel, up 0.1 percent; recreation, up 0.1 percent; and medical care, up 0.2 percent. But apparel has actually firmed compared to typical monthly declines, indicating that imported inflation is hitting the consumer.
Year-on-year, the overall CPI jumped to up 4.9 percent in June (seasonally adjusted) from up 4.1 percent in May. The core rate edged up to up 2.4 percent, compared to up 2.3 percent in May. The headline year-ago rate is at its highest since 5.6 percent for January 1991.
Higher energy and food prices are clearly boosting inflation and now there are signs of seepage into the core. This is certainly putting the Fed between a rock and a hard place.
The consumer price index turned red hot at the headline level in May due to a surge in energy costs. In May, the CPI spurted 0.6 percent based on oil-related price increases, following a 0.2 percent increase the month before. The core rate also firmed but not as much with a 0.2 percent boost after a 0.1 percent uptick in April. Fed officials will be parsing the numbers closely after indicating increased concern that food and energy inflation could be bleeding into the core rate. A soft economy has kept key portions of the core weak - notably for motor vehicles and apparel and the Fed is likely hoping for more of the same in coming months.
CPI Consensus Forecast for June 08: +0.8 percent
Range: +0.5 to +1.1 percent
CPI ex food & energy Consensus Forecast for June 08: +0.2 percent
Range: +0.1 to +0.3 percent
![[Chart]](chart.gif)
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It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the CPI are mainly volatile because of sharp fluctuations in food and energy prices. The core CPI eliminates the sharper fluctuations. |
![[Chart]](chart_1.gif)
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Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core CPI does not fluctuate as much as the total CPI. |
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