Merk Investments: CPI June 2008
The consumer price index for the month of June advanced 1.1% m/m (1.056) and 5.0% (5.022) y/y and the core increased 0.3% (0.323) m/m and 2.4% (2.413) on an annual basis. The ex-food estimate matched the headline and the ex-energy measure indicated costs increased 0.4% m/m and 2.9% y/y. Energy increased 6.6% m/m and 24.7% y/y while the cost of services 0.5% and 3.7% over that same period.
Inside the data the housing component increased 0.5% m/m and 3.5% y/y and the owners equivalent rent advanced 0.3% and2.6% over that same period. On a monthly basis fuel and utilities increased 1.8%, food and beverages 0.7% and gasoline 10.1%. Apparel was up 0.1%, transportation 3.8% and commodities 1.9%. The only major category that saw a decline in costs was the personal computer component which fell -1.4%.
The June inflation data provides absolutely zero comfort to a Fed that as of yesterday looks to have thrown in the towel on inflation. When one looks at the data there is a bit of depressing news for everyone. The headline met our expectations of a 5.0% increase, which was well above the expected 4.5% consensus. If one chooses to ignore headline costs and is a devotee of the core rate, the annual estimate was fractionally below arriving at 2.5%, well above the upper end of the Feds comfort zone. More importantly, the service component, which comprises 58.7% of the survey, increased 3.7% annually and 5.1% on a 3 month annualized basis. This does suggest that we are begging to observe a passing through of headline costs to the core and does not bode well for the Fed’s preferred measure of pricing, the PCE deflator when it is published on August 4.
Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy
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