“Based on the latest consumer price report, the Fed has plenty of leeway to keep rates low for some time. Lower energy costs tugged down on the consumer price index in June, resulting in a third consecutive decline in the headline number. In June overall CPI inflation dipped 0.1 percent, following a 0.2 percent decline in May.
Excluding food and energy, the CPI edged up to 0.2 percent after a 0.1 percent uptick in May. By components, energy component dropped 2.9 percent, equaling the May decrease. Gasoline fell 4.5 percent after a 5.2 percent decrease the previous month. Food prices overall were flat for the last two months.”
“Bumping up the core rate was a number of components. Apparel jumped 0.8 percent after a string of weak months. Medical care gained 0.3 percent. Used cars and tobacco both were up significantly for June. Even though the core rate firmed in June, this should not be disconcerting given that figures have been soft for some time.”
“Clearly, consumer prices have been sluggish since early in the past recession. Year-on-year, overall CPI inflation eased to 1.1 percent (seasonally adjusted) from 2.0 percent in May. The core rate in June remained at 1.0 percent. Both are well below the Fed’s implicit inflation target of 1-1/2 to 2 percent for the PCE price index. The CPI tends to be a little higher than the PCE price index because the CPI uses fixed weights rather than chain weights that are updated annually.”
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.