Tuesday, August 17, 2004

Deflation isn't yet back on the national economic radar screen, but it should be.

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.2 percent in July, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The July level of 189.4 (1982-84=100) was 3.0 percent higher than in July 2003. . . .

The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) decreased 0.1 percent in July on a not seasonally adjusted basis. The July level of 110.3 (December 1999=100) was 2.4 percent higher than in July 2003. . . .

On a seasonally adjusted basis, the CPI-U declined 0.1 percent in July, following a 0.3 percent increase in June. Energy costs declined 1.9 percent in July after advancing sharply in the first half of the year. Within energy, the index for motor fuels decreased 4.0 percent, while the index for household fuels rose 0.4 percent. The index for food, which rose 0.2 percent in June, increased 0.3 percent in July. The index for all items less food and energy registered a 0.1 percent increase for the second consecutive month. Declines in the indexes for apparel, for recreation, and for education and communication were largely offset by an increase in the lodging away from home component of shelter.


Annualized core inflation is now at 1.8%, still higher than what we saw in the midst of the 2003 deflation scare, but still below any other inflation rate we've seen since the mid-1960s. The core rate for the first half of the year (1.6%) is actually lower than what is was for the first half of 2003 (1.7%). General inflation (including food and energy) is still quite low at a 3.0% annualized rate, and the overall CPI for the first half of 2004 (2.3%) is also lower than for the first half of 2003 (2.5%).

July 2004 saw the first decline in the seasonally-adjusted CPI since November 2003, during the deflation scare. Seasonally-adjusted core CPI rose by its smallest amount since -- you guessed it -- November 2003, too. Commodities prices (SA) in July changed a stunning -0.5%, a drop not seen since November 2003 (again), and the same story goes for core commodities -- a -0.3% price change in July.

Surprisingly, one of the few sectors holding general prices up in July was food. Even though food commodity and food producer prices have been falling remarkably all summer long, retail food prices are still climbing, +0.3% for the month and a remarkable +5.5% annualized rate over the last three months. Eventually falling prices for food commodities will bump down retail food prices. Maybe then we'll see some attention put back on deflation.

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