Consumer Prices Unchanged In July

The headlines for the consumer price report look very soft but there are important offsetting pressures. The CPI came in unchanged in July pulled back by a 1.6 percent monthly decline in energy prices and other weakness including flat prices for food and contraction in transportation. And it doesn't look much better when excluding food & energy where the gain for the core is only 0.1 percent.

But two important categories -- medical and housing -- both show life. Medical care prices jumped 0.5 percent in the month for a year-on-year rate that leads the major readings, at a down right inflationary 4.0 percent. Housing costs rose 0.3 percent in the month with this year-on-year at 2.4 percent which, next to medical care, is the second highest on the list.

Total year-on-year prices are up only 0.8 percent with the closely watched core dipping 1 tenth to 2.2 percent. But the decline in energy and transportation can very well reverse quickly as could the lack of pressure in food prices. But medical and housing costs are a core of their own and should give policy makers confidence that their efforts to lift inflation are making incremental progress.

Recent History Of This Indicator:
Consumer prices are not expected to show any strength at all in July with the consensus at no change in what would be the weakest result in more than 3 years. But much of this weakness is tied to gasoline prices which have been coming down after spiking at mid-year. Excluding food & energy, the core rate is expected to rise a constructive 0.2 percent. Strength in service prices was a highlight of June's report but were a major weakness in July's producer price report.