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Friday, July 15, 2011

Key Measures of Inflation ease in June

by Calculated Risk on 7/15/2011 01:13:00 PM

This week Fed Chairman Bernanke reiterated the Fed's position that further easing (i.e. QE3) would require both persistent economic weakness and a greater risk of deflation. From Bernanke's testimony:

[T]he possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support.
One thing to watch will be the following key measures.

Earlier today the BLS reported:
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.2 percent in June on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. ... The gasoline index declined sharply in June, falling 6.8 percent. ... In contrast, the index for all items less food and energy increased 0.3 percent for the second consecutive month.
The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:
According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% (1.7% annualized rate) in June. The 16% trimmed-mean Consumer Price Index increased 0.1% (1.7% annualized rate) during the month.

Over the last 12 months, the median CPI rose 1.6%, the trimmed-mean CPI rose 2.0%, the CPI rose 3.6%, and the CPI less food and energy rose 1.6%.
Note: The Cleveland Fed has a discussion of a number of measures of inflation: Measuring Inflation. You can see the median CPI details for June here.

Inflation Measures Click on graph for larger image in graph gallery.

On a year-over-year basis, these measures of inflation are increasing, but still mostly below the Fed's target. The trimmed-mean is at 2.0% year-over-year; at the Fed's target.

On a monthly basis, the median Consumer Price Index increased 1.7% at an annualized rate, down from 2.1% annualized in May. The 16% trimmed-mean Consumer Price Index also increased 1.7% annualized in June, down from 2.8% annualized in May. And core CPI increased 3.1% annualized, down from 3.5% annualized in May.

With the slack in the system, the year-over-year measures will probably stay near or be below 2% this year.

• From the NY Fed: Empire State Manufacturing Survey indicates conditions deteriorated in July
Consumer Sentiment declines sharply in July
Industrial Production increased 0.2% in June, Capacity Utilization unchanged
Eight Banks Fail European Stress Tests