June CPI: Never Look A Gift Horse In The Mouth

Never look a gift horse in the mouth. June’s CPI was that kind of gift horse, reversing all of the factors that have recently surged during the Iran war. As a bonus, inflation in shelter (1/3rd of the weight of the index) continued to abate.

Let’s start with the overall view. For the month, headline consumer prices declined by -0.4%. Excluding food and energy, they were unchanged. Excluding shelter prices, they declined -0.6%(!). On a YoY basis, headline price gains (blue) decelerated from 4.2% to 3.6%. Core price gains (red) decelerated by -0.2% to 2.6%. And ex-shelter, price gains (gold) decelerated -1.0% to 3.6%:

Shelter is 1/3ed of the entire index, and the good news continued there, as shelter prices increased only 0.1%, as did both of its components, rent and “owners’ equivalent rent.” This was one of the lowest increases in over five years. On a YoY basis, prices were still up 3.3%:

But of course, the big reason for the decline in headline prices was energy costs (including gasoline), which declined by -5.7% in June alone, reducing the YoY gains to 15.7%:

Although I won’t bother with graphs, the former problem children of new and used vehicles continued to sleep, with the price of new vehicles unchanged and used vehicles down -0.2%. On a YoY basis, they are up only 0.5% and down -1.8%.

There was good news on our other recent “problem children” as well. Transportation services (including car insurance and repairs) declined by -0.3%. On a YoY basis, they are now only up 2.9%:

And the AI data center-related categories of electricity and utility services declined by -1.0% and were up by 0.5%, respectively. On a YoY basis, they are up 4.0% and 3.0% - not great but not as bad as in the past few months:

Finally, the decline in headline inflation was good news for both real nonsupervisory hourly wages (blue), up 0.6% for the month and slightly below unchanged YoY; and real aggregate nonsupervisory payrolls (red), up 0.3% for the month and up 1.0% YoY, although both remain about -0.5% below their February and January peaks, respectively:

Recall that real aggregate nonsupervisory wages are an excellent short-term leading indicator for recession, and the fact that they rebounded in June means that, for now, recession risk is receding.