Washington: With a steep drop in gas prices offset by an increase in the cost of shelter, the Labor Department released a report on Thursday showing an unexpected uptick in U.S. consumer prices in the month of June.
The Labor Department said its consumer price index inched up by 0.1 percent in June, matching the slight increase seen in May. Economists had expected consumer prices to come in unchanged.
The unexpected uptick in consumer prices came even though energy prices tumbled by 2.3 percent in June after falling by 0.6 percent in May. Gas prices plunged by 3.6 percent.
Excluding food and energy prices, core consumer prices rose by 0.3 percent in June after inching up by 0.1 percent for four consecutive months. Core prices had been expected to edge up by 0.2 percent.
Shelter costs led core prices higher, rising by 0.3 percent, while prices for apparel, used cars and trucks, and household furnishings and operations also showed notable increases.
Despite the unexpected monthly increase, the Labor Department said the annual rate of consumer price growth slowed to 1.6 percent in June from 1.8 percent in May.
Meanwhile, the report said the annual rate of core consumer price growth crept up to 2.1 percent in June from 2.0 percent in the previous month.
Andrew Hunter, Senior U.S. Economist at Capital Economics, does not expect the stronger than expected core consumer price growth to prevent the Federal Reserve from cutting interest rates later this month and expressed doubt the strength will be sustained.
“Higher tariffs could yet put some further upward pressure on core goods prices over the coming months but, with growth in unit labor costs slowing, we still think core CPI inflation will remain muted,” Hunter said.
He added, “With the latest surveys pointing to a sharp slowdown in activity growth, we expect the Fed to follow a 25bp rate cut this month with further cuts in December and March next year.”
The Labor Department is scheduled to release a separate report on producer price inflation in the month of June on Friday.
Producer prices are expected to come in unchanged in June after inching up by 0.1 percent, while core producer prices are expected to rise by another 0.2 percent.
The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60 percent of the index covers the prices that consumers pay for services ranging from medical visits to airline fares, movie tickets and rents.
Consumer Price Index (CPI)
The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services. The CPI reflects spending patterns for each of two population groups: all urban consumers and urban wage earners and clerical workers. The all urban consumer group represents about 93 percent of the total U.S. population. It is based on the expenditures of almost all residents of urban or metropolitan areas, including professionals, the self-employed, the poor, the unemployed, and retired people, as well as urban wage earners and clerical workers.
Not included in the CPI are the spending patterns of people living in rural nonmetropolitan areas, farming families, people in the Armed Forces, and those in institutions, such as prisons and mental hospitals.
Consumer inflation for all urban consumers is measured by two indexes, namely, the Consumer Price Index for All Urban Consumers (CPI-U) and the Chained Consumer Price Index for All Urban Consumers (C-CPI-U).
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is based on the expenditures of households included in the CPI-U definition that meet two requirements: more than one half of the household’s income must come from clerical or wage occupations, and at least one of the household’s earners must have been employed for at least 37 weeks during the previous 12 months.
The CPI-W population represents about 29 percent of the total U.S. population and is a subset of the CPI-U population.
The CPIs are based on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country from about 5,000 housing units and approximately 22,000 retail establishments (department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments).
All taxes directly associated with the purchase and use of items are included in the index. Prices of fuels and a few other items are obtained every month in all 75 locations.
Prices of most other commodities and services are collected every month in the three largest geographic areas and every other month in other areas. Prices of most goods and services are obtained by personal visits or telephone calls by the Bureau’s trained representatives.