Inflation Remains Non-Issue

Inflation wasn't brewing in July and with oil prices moving lower, inflation may not be showing much pressure in August either. The consumer price index rose only 0.1 percent in July as did the core, both under expectations. Year-on-year rates show slightly more pressure with overall inflation up 0.2 percent, which is very low but up from 0.1 percent in the prior month and the second positive reading of the year, and with the core steady at plus 1.8 percent which is just under the Fed's 2 percent target. Gasoline moved sharply higher in July, up 0.9 percent following outsized gains of 3.4 percent and 10.4 percent in the prior two months. But with gas prices moving steadily lower this month, the upward effects of gasoline will be turning downward in August. Another major component showing upward pressure in July is apparel which rose 0.3 percent following, however, a long string of declines. Owners equivalent rent continues to show pressure, up 0.3 percent on top of June's outsized gain of 0.4 percent. Elsewhere, however, pressures are hard to find with electricity down 0.4 percent, used vehicles down 0.6 percent, new vehicles down 0.2 percent, and airfares down 5.6 percent. Medical, drugs, and education all rose only 0.1 percent. There may be some upward creep in the headline year-on-year rates but, given the ongoing decline in oil, this report won't be pushing the Fed for a September rate hike.

Recent History Of This Indicator The consumer price report did show some pressure in June but less is expected for July with headline expectations at a moderate 0.2 percent gain vs 0.3 percent in June. The core rate is seen repeating a 0.2 percent rise. The year-on-year core rate, at 1.8 percent in June, will get close attention and whether it continues to move toward the Fed's 2 percent. Still, the ongoing decline in oil prices will make this report seem outdated.