August 11, 2017 – The Consumer Price Index (CPI) tells us of any inflationary pressures in the economy. The CPI measures the average price levels of a basket of goods and services purchased by consumers. The index starts with a base time period (1982-1984, currently) and shows the overall increase since that time. As with many economic indicators, it can be volatile from month to month with food and energy prices often leading the volatility.
The Consumer Price Index increased 0.1% in July, short of expectations of a 0.2% increase. Core CPI, which excludes food and energy rose slightly at 0.1% but missed the consensus of 0.2%. Year-over-year CPI is up 1.7% and core CPI is up 1.7% over the last year. Energy inched down 0.1% for the third straight month with volatile gasoline prices were unchanged in July.
Even when taking out volatile energy and food prices, core CPI still rose in July signaling to an increase in inflation. Changes in CPI are mostly used to keep Social Security payments adjusted with rising consumer prices. CPI also changes the cost of lunch at schools as well as keep rent payments inline for landlords. Although closely related to CPI, the Personal Consumption Expenditure (PCE) provides a better picture for the change in inflation. Regardless of slower growth, Fed members have signaled an optimistic view on the job market and the economy. We believe inflation will continue to have slight growth as the Federal Reserve moves forward with their plan to start unwinding the balance sheet in September.