EmailAfter increasing 0.2% in May, consumer prices reversed direction and fell 0.2% in June. That is the first monthly decline in the CPI since June 2010. The Briefing.com consensus expected the CPI to fall 0.1%.
In a similar fashion to the PPI report, the decline in overall prices was due to a steep drop-off in energy costs. The energy index fell 4.4% in June as the gasoline index tumbled 6.8%.
Food prices continued to expand, up 0.2% in June. However, this was the smallest increase since December 2010.
Outside of the food and energy sectors, core CPI increased a robust 0.3% for the second consecutive month. The consensus expected prices to moderate slightly and increase only 0.2%.
Price increases were seen in just about every sector. This is a signal that elevated commodity price pressures that producers have been facing over the past few months may be starting to pass through to the consumer. This was most apparent in the apparel sector where prices have increased by more than 1.0% per month for the past two months on a surge in cotton prices.
As expected, supply shortages in the motor vehicle sector led to price increases in both new (0.6%) and used vehicle prices (1.6%).
Even though price growth seems to be inching higher, year-over-year inflation rates still remain tame. Core prices have only increased 1.6% y/y and are well below the Fed's target of 2.0% - 2.5% yearly inflation growth.
This report does not suggest that the Fed will need to tighten its monetary policy anytime soon. It is a warning, however, that prices are beginning to increase even as the slack in the labor market expands.
