CPI Gains Relatively Benign

Headline CPI rose +.2% MoM in June, slightly higher than expected, but still the smallest increase in five months. On an annual basis, headline CPI held steady at 2.7% YoY rather than softening to 2.6% as expected. Core CPI rose +.2% MoM, as expected, and also head steady at 2.2% YoY, which is a one year low. Year-to-date, headline prices are rising at a 5% annual rate, and core prices are rising at a 2.3% annual pace.

As expected, energy price gains halted in June after rising steadily over the prior months. This helped rein in the gains in headline inflation which grew +.7% MoM in May. Energy prices actually declined -.5% MoM in June after rising 5.4% in April. Gasoline prices fell -1.1% in June. Since June of last year, gasoline has risen +5% YoY (+25% in last three months annualized) and energy prices have increased +4.6% YoY.

In contrast, food prices continue to accelerate higher, rising +.5% MoM in June versus a gain of +.3% MoM in May. Poultry and dairy price hikes led the gain. Food has risen 4.1% YoY.

Owners' equivalent rent rose from last month's two year low, of +.1% MoM, to increase +.2% MoM in June. OER is expected to soften this year as higher vacancy rates depress rents. General housing costs also rose this month to a +.3% MoM gain versus +.2% MoM in May.

Medical care costs eased to +.2% MoM, continuing a moderating trend this year. Clothing costs continue to deflate, falling -.6% MoM in June after declining -.3% MoM the two prior months. Auto prices were unchanged as sales continue to soften, and are down -1.9% YoY. Continue the trend, computer prices fell another -2.7% MoM (-9.3% YoY) to be the biggest decliner over the past year.

The CPI index is the most watched index because it is the government's broadest measure of costs across goods and services based on a constant basket of items. About 60 percent of the index covers services.

Interest rates have barely moved on the data.