July 2010 Consumer and Producer Price Indices: Where’s the Deflation?

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The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in July; before seasonal adjustment, the all items index was unchanged for the month. Over the last 12 months, the index increased 1.2 percent before seasonal adjustment.

The energy index posted its first increase since January and accounted for over two thirds of the seasonally adjusted all-items increase. Both the gasoline and household energy indexes turned up in July after a series of declines. By contrast, the food index declined in July, largely due to the fourth consecutive decline in the fruits and vegetables index.

The index for all items less food and energy rose 0.1 percent in July after increasing 0.2 percent in June. The 12-month change in the index for all items less food and energy remained at 0.9 percent for the fourth month in a row.

The seasonally adjusted Producer Price Index for Finished Goods (PPI) rose 0.2 percent in July. This advance followed a 0.5-percent decline in June and a 0.3-percent decrease in May.

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At the earlier stages of processing, prices received by manufacturers of intermediate goods moved down 0.4 percent in July and the crude goods index rose 2.7 percent. On an unadjusted basis, prices for finished goods advanced 4.2 percent for the 12 months ended July 2010, their ninth consecutive 12-month increase.

Finished goods: The increase in the index for finished goods can be traced to higher prices for finished goods other than foods and energy, which rose 0.3 percent. Also contributing to the advance in finished goods prices, the index for consumer foods moved up 0.7 percent. By contrast, the finished energy goods index fell 0.9 percent in July. Prices for finished goods have risen 4.2 percent during the past 12 months.

Intermediate goods: The index for Intermediate Materials, Supplies, and Components moved down 0.4 percent in July, its second straight decrease. Prices for both intermediate materials other than foods and energy and for intermediate foods and feeds fell 0.4 percent in July. The index for intermediate energy goods decreased 0.7 percent. On a 12-month basis, prices for intermediate goods climbed 6.4 percent for the second consecutive month.

Crude goods: The index for Crude Materials for Further Processing moved up 2.7 percent; almost two-thirds of the monthly increase came from crude energy materials, which moved up 4.5 percent. Also contributing to the July increase, prices for crude foodstuffs and feedstuffs rose 3.3 percent. By contrast, the index for crude nonfood materials less energy moved down 1.4 percent in July.

Our reaction to the CPI and PPI data is consistent with that of Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, who opined that "we're going to avoid an outright bout of deflation."

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The price index for pulpwood jumped a rather substantial 5.7 percent in July, which in turn helped push the change in the Pulp, Paper & Allied Products index into mildly positive territory (0.2 percent). The other forest products-related price indices declined between June and July.

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All of the indices are higher than a year earlier, but -- except for Pulp, Paper & Allied Products -- the rates of increase have slower than their previous peaks.

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