Fleet Management

Economic Watch: Inflation Positive, Consumer Confidence Down

July 19, 2015

By Evan Lockridge

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Consumer prices increased in June from the month before, in positive territory for the first time this year, according to the U.S. Labor Department. A separate report shows consumers' feeling about the economy a just a little less hot than earlier.

The Consumer Price Index showed inflation of 0.3% in June. That's 0.1% higher than the same time a year earlier, its first year-over-year gain since last December.

The June increase was broad-based, with advances in prices for energy, shelter, and food. The energy index rose for the second straight month as prices for gasoline, electricity, and natural gas all increased.

Food prices posted the largest increase since September 2014, thanks to avian flu.

Food prices posted the largest increase since September 2014, 0.3% from May to June, largely because of a more than 18% hike in egg prices due to avian flu that has forced millions of chickens to be destroyed. Gasoline prices increased 3.4% but are still down 23.3% from a year earlier.

Excluding volatile food and energy prices, core CPI prices increased 0.2% in June and are up 1.8% from the same time in 2014.

“Inflation was as expected in June, with a slightly lower monthly increase than last month as energy price pressures once again abated,” said Lindsey Piegza, chief economist for Sterne Fixed Income. “Stable prices is the missing component in the Federal Reserve's equation of reasonable confidence for policy firming."

With oil back down below $60, coupled with continued sluggish growth in China and elsewhere abroad translating into further weakness in import prices, the Fed may be waiting a while longer for prices to hit its longer term target of 2% annually.

Last week Federal Reserve Chairman Janet Yellen, in testimony before Congress, said further improvement is still needed to justify a rate increase.

Consumer Survey

Meantime, consumer enthusiasm throttled back a bit this month, according to the University of Michigan Survey of Consumers.

Preliminary consumer sentiment reading for July marked the eighth straight month above 80.

Its preliminary reading for July registered 93.3 compared to a final June reading of 96.1, but marked the eighth straight month above 80, the best record since the 17 months recorded from late 2003 to early 2005 during the last economic expansion.

"Consumer confidence continued to meander sidewards with no indication of a potential break in the prevailing positive trend in sentiment,” said Surveys of Consumers chief economist, Richard Curtin. "The small loss in early July reflected a slight rise in concerns about international developments, which was partially offset by continued news of job gains.”

Measures of consumers’ feelings about current economic conditions and expectations were also down by similar margins from month to month, but were up 8.8% and 18.7%, respectively, this month when compared to July 2014.

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