Magazine article Economic Trends

A Few Bad Apples Spoil June's Price Statistics

Magazine article Economic Trends

A Few Bad Apples Spoil June's Price Statistics

Article excerpt


Until recently, the debate between the "inflation is too high" crowd and the "subdued" inflation adherents had centered on the use of headline and core measures of inflation. Core measures exclude food and energy prices, and energy prices had been rising sharply through the first four months of the year, pushing up the headline growth rate relative to the core. In June, however, energy prices reversed course, food prices posted modest gains, and the core CPI jumped up markedly, perhaps causing angst to some debaters. Fortunately at inflection points like these, we have a few alternative price change indicators that may shed some light on the underlying inflation trend.

June Price Statistics

                       Percent change, last

              1mo.     3mo.  6mo.  12mo.  5yr.     2010
               (a)      (a)   (a)          (a)  average


All items     -2.6      1.5   3.8    3.6   2.2      1.4
Less food      3.1      2.9   2.5    1.6   1.8      0.6
and energy
Median (b)     1.7      2.2   2.1    1.6   2.1      0.7
16% trimmed    1.2      2.4   2.8    2.0   2 I      0.8
mean (b)
Sticky         1.0      1.5   1.8    1.4   2.0      0.9
price (c)
Flexible     -11.4      1.0   8.7    8 6   2.5      3.5
price (c)

a. Annualized.
b. Calculated by the Federal Reserve Bank of Cleveland.
c. Author's calculations.
Source: Bureau of Labor Statistics.

The headline CPI fell at an annualized rate of 2.6 percent in June, due largely to a sizeable decline in gasoline prices, though declines in household energy prices helped as well. Food prices rose 2.4 percent in June, the smallest monthly increase in the series so far this year. But the unexpected (and perhaps somewhat worrisome) aspect of the recently released figures was that the core CPI (the CPI excluding food and energy prices) jumped up 3.1 percent, and has now risen at an annualized rate of 2.9 percent over the past three months. This is an entirely different signal (and more than 1.0 percentage point higher) than that of the median CPI (which increased just 1.7 percent in June, a slight deceleration from its 3- and 6-month growth rates). This raises the question: What gives?

Well, it appears that the core CPI was affected by a few usually large price increases in June. These "bad apples" were lodging away from home, auto prices, and apparel prices. The index for lodging away from home followed up a 40 percent spike up in May (its largest price increase since October 2005) by increasing 42.6 percent in June. Car and truck rental, a particularly noisy series, rose 51 percent in June, more than rebounding from a 42 percent decrease in May. New vehicle prices, which jumped up 14 percent in May, rose 7.5 percent in June and have risen 8.3 percent over the past six months, that compares to a growth rate of -0.5 percent over the prior six months. Also, used car prices jumped up 22 percent during the month, the largest monthly increase in the series since December 2009. Finally, apparel prices jumped up 1 8.3 percent in June (their largest monthly increase since mid-1990), in part because the seasonally adjusted index for men's apparel posted its largest one-month jump up in the history of the series (which dates back to 1947), rising 35. …

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