CPI inflation reported another strong increase in June as food, energy and core component prices all made positive contributions. Total CPI rose 0.3% m/m, in line with the consensus and expectations. Core CPI was up 0.2% m/m, also in line with expectations. The NSA CPI index came in at 238.638, versus (238.6) and consensus (238.632) forecasts. Energy prices rose 1.7% m/m and food prices rose 0.3% m/m, after being flat or declining for the past three months. On a y/y basis, total CPI rose 0.1% (previous 0.0%) and core CPI 1.8% (previous 1.7%).
Services inflation reported another strong month and remained the main driver behind the solid core CPI print. Core services rose 0.3% m/m (previous 0.2%), supported by a similar rise in shelter inflation (previous 0.2%). Within shelter both rent and OER components rose a strong 0.4%, such an increase in these series was last seen in 2013 and 2006, respectively. Medical services inflation fell 0.2% m/m, but this comes after three months of solid increases. Transportation costs were up 0.4% as airfare prices reported another solid month. Services inflation is now running at 2.5% y/y, close to its range of the past year, supported by shelter prices increasing at a strong 3.0% y/y.
Core goods prices declined 0.1% m/m for the second consecutive month. The series was driven lower by declines in the used cars (-0.4%), apparel (-0.1%) and alcoholic beverages (-0.2%) components. It can be pointed out that, used cars prices fell after posting strong consecutive increases since April, and are inclined to read the latest outturns as payback. The other components posted healthy increases. Overall, the small decline in core good prices suggests a marginal drag from this series on overall core CPI is likely. It expected that, there will be moderate pick-up in core inflation this year, as a small drag from core goods inflation will likely be outweighed by a healthy rate of core services inflation, says Barclays.
