CPI data from the BLS, chart by Mish

The BLS reports the CPI Rose 0.2 Percent in July.

CPI Month-Over-Month Details

• The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent on a seasonally adjusted basis, after declining 0.1 percent in June.
• The index for shelter rose 0.4 percent in July, accounting for nearly 90 percent of the monthly increase in the all items index.
• The energy index was unchanged over the month, after declining in the two preceding months.
• The index for food increased 0.2 percent in July, as it did in June. The food away from home index rose 0.2 percent over the month, and the food at home index increased 0.1 percent.
• The index for all items less food and energy rose 0.2 percent in July, after rising 0.1 percent the preceding month.
• Indexes which increased in July include shelter, motor vehicle insurance, household furnishings and operations, education, recreation, and personal care.
• The indexes for used cars and trucks, medical care, airline fares, and apparel were among those that decreased over the month.

CPI Month-Over-Month Rent and OER

Shelter Was Hot

The largest component in the CPI is Owners’ Equivalent Rent (OER) with a weight of 26.76 percent. OER is the price homeowners would pay to rent their own home if the rented instead of owned.

Rent of Primary Residence is another 7.64 percent, and the broader Shelter category is a huge 36.32 percent of the CPI.

I estimated 0.1 percent month-over-month because I expected better shelter readings than we got.

The price of rent and OER each rose at least 0.4 percent every month for 33 consecutive months, breaking the string last month with a rise of 0.3 percent for both.

I was surprised to see rent back at 0.5 percent and would have gotten the 0.1 percent decline I expected had that not happened.

This is not good news.

Good News on the Medical Front

Medical care services, with a weight of 6.51 percent, declined 0.3 percent in July.

Medical care commodities, with a weight of 1.48 percent, rose 0.2 percent.

Those taking expensive prescriptions may have been hit much harder, while those on Medicare may not notice a thing.

CPI Month-Over-Month Energy and Gasoline

The price of energy and the price of gasoline were both unchanged from a month ago.

Gasoline accounts for 3.50 percentage points of the 6.92 weight given to energy in the CPI.

Electricity accounts for another 2.50 percentage points of the broader index. Based of gasoline prices, I figured the energy index would likely be flat this month.

CPI Month-Over-Month Food

Food was up 0.2 percent for the month, with food at home up only 0.1 percent.

There is a lot of disagreement over food. But if you know how to shop and have a big freezer, you can do much better than the CPI reports just by buying what’s on sale and freezing it or storing it in the pantry.

If you don’t have a freezer, insist on organic, etc., you will likely do worse or perhaps much worse than the BLS suggests.

CPI Year-Over-Year Percent Change

Year-Over-Year Details

• CPI: 2.9 Percent
• OER: 5.3 Percent
• Rent: 5.1 Percent
• Core CPI (excluding food and energy): 3.2 Percent
• Food and Beverage: 2.2 Percent

My Forecast

I have not done this before, in detail, but yesterday I commented Expect Good to Very Good CPI Reports for July, August, and September.

Year-Over-Year Look Ahead

• July: 2.9 percent
• August: 2.4 percent
• September: 2.1 percent

At the risk of looking silly, I suggest any surprises for those numbers to be to the downside.

Had shelter come in better for July, we would have seen July at 2.8 percent.

But if shelter is up another 0.4 percent in August, then I will be on the low side for August.

For each 0.1 percentage point difference in August vs the above estimate, my forecast for September will change correspondingly.

I may revise my estimates closer to next month’s report. For now, I will stick with those estimates.

BLS Lies, Manipulation, BS?

The CPI is a very personal thing, leading to charges of BLS manipulation or outright lies.

Those stuck renting and seeking to buy their first home, those who pay their own health insurance, and those in flood or fire zone with soaring insurance costs will all think the overall numbers are somewhere between BS and lies.

Those who own their own home, and don’t live in a high insurance area, and are healthy or are on Medicare will have lower than the reported rises in the CPI.

I am in that fortunate class. It’s BLS averaging that makes it look like lies to many people.

That said, I believe the inflation is understated because the BLS does not properly account for home prices, not because of purposeful manipulation.

Inflation Matters

Inflation matters, not just consumer inflation.

The BLS and the Fed totally miss the boat because home prices are not in the CPI and both act like rising home prices don’t matter.

The Fed has made many huge mistakes by not accounting for home price inflation. Its QE and inability to think clearly created the housing mess we are in.

Storm Brewing

Meanwhile a major storm is brewing. Please note Credit Card and Auto Loan Delinquencies Surge in the Second Quarter

Over ten percent of credit card outstanding debt is over 90 days delinquent. Banks will be curtailing credit.

Recession Debate

On August 9, I discussed why things are worse than they look.

If you missed it, please see Recession Debate: Citing the Sahm Rule, WSJ’s Greg Ip Says No Recession

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