The CPI was up 0.3% in July, the Labor Department reported, though without a 4.4% increase in the price of gasoline, the overall rise was much tamer. Excluding volatile food and energy prices, the core prices increased 0.13%. Over the past year, prices have risen 1.2%, the slowest pace in 44 years. Consistent, very low inflation, though, in a sputtering economy, means wages remain muted as well as prices for goods, which could push the economy into a deflationary cycle.
Ian Shepherdson, chief U.S. economist for High Frequency Economics in Valhalla, New York, said in an analyst note that the overall rise was only a tenth more than consensus estimates and the core rise was as expected.
"The core index rose by 0.13%, thanks to 0.1% increases in rents, both primary and OER, a 0.8% rise in used car prices (still catching up with auction prices but nearly done now), a 0.6% rise in apparel and a 1.6% increase in tobacco, the third straight hefty gain," Shepherdson said in the note. "Medical costs and recreation fell slightly. With rental vacancy rates stabilizing we think the extreme downward pressure on rents is over, but other core components can slow further."
The other closely watched report was retail sales for July, which rose 0.4% last month, the Commerce Department said. The overall number was not too bad, but when removing auto purchases, sales fell 0.1%, which added even more concern for retailers as they geared up for the important back-to-school shopping month in August.
Retail sales were down 1% at department stores and also dropped at specialty clothing stores, furniture stores, hardware stores, and appliance stores. The July increase in retail sales followed declines of 0.3% in June and 1% in May.
Steve Blitz, senior economist at Majestic Research in New York, said in analyst note, "Today's retail sales report is the logical reflection of an economy having households riddled with doubt regarding income, employment, and the valuation of their main assets -- homes and equities. Consumers pulled back on spending in July in all categories with the exception of autos and gasoline -- and energy prices have since come off. Looking at control retail sales, spending excluding autos, building materials, and gasoline, spending was down 0.09% and is now down 0.5% since March."
Blitz said that as consumers pulled back, household savings rate would likely increase in the third quarter, and by extension "this behavior will eventually pull consumer prices down as well, unless asset values turn up soon and there is the belief that the upturn is more permanent than not."
The Commerce Department also reported Friday that inventories held by businesses rose for a sixth straight month in June but sales declined for a second month in a row, leading to concern that manufacturers were starting to cut back. Inventories increased 0.3% in June, but sales fell 0.6% following an even larger 1.2% sales decline in May.