Consumer Price Index; % Change M/M, All Urban Consumers

The consumer price index fell by 0.2 percent in June, pushed down by a 4.4 percent decline in energy prices. However, the core CPI, which excludes the volatile food and energy categories, increased by a larger-than-expected 0.3 percent for a second consecutive month. Rising vehicle and apparel prices, which gained 1.0 and 1.4 percent, respectively, were behind the increase in core prices. Vehicle price increases resulted from supply chain disruptions related to the disasters in Japan, and the spike in apparel prices is tied to the high price of cotton on the global markets. These spikes are unlikely to be repeated; vehicle supply chains are returning to normal, and cotton futures are lower. Looking at 12-month trends, the CPI is up by 3.6 percent while the core CPI has increased by 1.6 percent. Core CPI remains well within the Federal Reserve’s informal target rate of 2 percent, although it has been increasing steadily since last October when it hit a low of 0.6 percent. For commercial real estate, the gradual increase in inflation may provide some cover for landlords looking to raise rents as market conditions tighten. Overall inflation still looks tame, but this could change if elected officials fail to raise the debt ceiling, prompting the ratings agencies to downgrades U.S. Treasuries. That scenario could trigger a sudden and unwelcome increase in interest rates, putting upward pressure on inflation. 

Source: Bureau of Labor Statistics, Grubb & Ellis