Another Month of Benign Inflation

Written by Richard Hokenson 

U.S. Inflation remained soft in July:
  • The July total CPI increased by 0.1 per cent from June and the year-ago change remained below 2 per cent (see Chart 1).
  • The core CPI remained below the Fed target of 2 per cent for the fourth month in a row (see Chart 2). 
  • Contributing to the year-on-year benevolent increases in both total and core inflation was a decline in the year-ago percent change for shelter (see Chart 3). Although it was highlighted in the press release that lower prices for lodging away from home was a factor in the decline in the price index for shelter, a major contribution also came from owners’ equivalent rent (see Chart 4).

The Housing Vacancy report, however, that the median asking rent for vacant for rent units registered an uptick in the second quarter (see Chart 5). An asking price, however, is not necessarily the same as actual transaction prices which are captured in the CPI. Considering the important role that shelter pays in the total and core CPI, it is a situation that we (Hokenson & Company) will continue to monitor.

  • Stripped of food, energy and shelter, the year-ago percent change in the CPI remained very low, just slightly in excess of 0.5 per cent (see Chart 6).
The fourth month in a row of benign core inflation makes it increasingly difficult for the Fed to dismiss this trend as temporary or “fluky”. Inflation is low because the world is structurally disinflationary which explains the inability of central banks in the US, the Eurozone or Japan to hit inflation targets. It is a global issue. We reiterate our view that there will not be any additional rate increases this year. 


This update was researched and written by Richard Hokenson. Data is as of 17 August 2017


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