The CPI headline does not provide political backing for a politically unpopular rate hike at the July FOMC meeting. Details – such as outliers reverting in a month or two – don’t matter today.

By Wolf Richter for WOLF STREET.

The Consumer Price Index for gasoline prices plunged in June from the spike in the prior months, roughly as expected as prices at the pump started dropping in May.

But June was also one of those rare months when the month-to-month squiggles – represented by the blue lines in the charts below – in many major categories either were negative or nearly unchanged at the same time, reflected in the “core” CPI, which excludes energy and food, and thereby excludes the plunge in gasoline prices.

Core CPI (excludes energy and food) fell by 0.02% in June from May, or annualized -0.20% (blue line in the chart), according to data from the Bureau of Labor Statistics today. The last time it fell month-to-month was in 2020, before it bounced back violently.

As the blue line in the chart shows, big outlier month-to-month moves like this are followed in a month or two by big moves in the opposite direction. That’s how the month-to-month squiggles work.

The negative month-to-month reading of core CPI occurred because of the outlier near-0% month-to-month reading of the “core services” CPI (accounts for about three-quarters of core CPI), and negative month-to-month readings in the big categories of non-food-and-energy goods, such as new and used vehicles; apparel, footwear, and jewelry; and household furnishings and supplies.

The month-to-month drop of core CPI pushed down the year-over-year increase to +2.59% (red line).

Since January 2020, the core CPI has soared by 27%.

The all-items CPI (which includes energy and food) dropped by 0.42% in June from May (-5.0% annualized, blue line), hammered down by the month-to-month plunge in energy prices.

This month-to-month drop of the all-items CPI caused the year-over-year reading to decelerate to a still very high +3.53% (red in the chart).

Since January 2020, the all-items CPI has soared by 30%.

The core services CPI, which excludes energy services such as electricity, inched up by only 0.03% in June from May, so nearly unchanged (blue line).

It was pushed down by a month-to-month plunge in motor vehicle insurance (-2.0%, or -21.6% annualized) and month-to-month drops in many categories, including health insurance (-0.46%, or -5.4% annualized).

The housing CPIs rose only modestly month-to-month: Rent +0.15% and Owners Equivalent of Rent +0.24%.

But the CPI for motor vehicle maintenance continued to soar, in June by 1.09% from May (+13.9% annualized). It is up by 50% since January 2020.

This outlier near-0% month-to-month increase of the core services CPI caused the year-over-year increase to decelerate to a still high +3.47% (red line).

Since January 2020, the core services CPI has soared by 30%.

The “core goods” CPI (all goods except food & energy goods) dipped by 0.09% in June from May, the second month in a row of negative readings.

The dip was driven by the CPIs for used vehicles and new vehicles (which dominate this category) both of which dipped in June from May. Also the CPI for apparel, footwear, jewelry, and watches fell month-to-month, as did the CPI for household furnishings and supplies.

Year-over-year, the core goods CPI was up by 0.8%. Since January 2020, the core goods CPI has risen by 16%.

This chart shows the price level of the CPI for “core” goods, not the percentage changes.

Food inflation. 

The CPI for food at home ticked up by 0.23% in June from May (+2.8% annualized). This index tracks food bought at grocery stores and markets to be consumed off premise.

Year-over-year, the CPI for food at home rose by 2.6%, a slight deceleration from the prior two months (red line).

This chart shows the price level of the CPI for food at home, not the percentage changes. Since January 2020, it has risen by 32%:

Energy inflation.

The CPI for energy plunged by 5.7% in June from May (-50.6% annualized), driven by the plunge in the CPI for gasoline and the drop in the CPI for electricity.

But year-over-year, the energy CPI was still up by 45%. The CPI for energy weighs 7.8% in the all-items CPI.

The CPI for gasoline plunged by 9.7% month-to-month, seasonally adjusted.

But year-over-year, it was still up by 26.7%. And since January 2020, it was up by 41%.

The CPI for gasoline fuel weighs 4.3% in the all-items CPI.

The chart shows the price level of the gasoline CPI, and not the percentage change, seasonally adjusted (red) and not seasonally adjusted (blue).

The CPI for electricity fell by 1.04% in June from May. This reduced the year-over-year increase to 4.0%.

Data center demand has been pressuring electricity prices for years. Since the beginning of 2021, the CPI for electricity has surged by 43%.

The CPI for electricity weighs 2.5% in the all-items CPI.

As far as rate hikes is concerned.

This report does not provide political backing for a rate hike at the July FOMC meeting. Rate hikes are highly unpopular in any White House, particularly in this White House. And they’re unpopular in Congress. Politicians love free money. And so rate hikes need to have the backing immediately beforehand from the headline inflation data. The details – such as outliers reverting in future months – don’t matter. No one up there has any patience with details. And this report’s headline data doesn’t provide that backing in the headline data.

The September FOMC meeting takes place after the CPI report for July and August are released, and after the reports for the Fed-favored PCE price index for June and July are released. And if today’s outliers revert by then, those reports may provide backing for a rate hike at the September meeting. But that didn’t happen today.

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the mug to find out how: