Policymakers who said rapidly rising energy prices were transitory may be right, but the trend suggests prices may still increase faster than we're used to
Inflation, largely blamed for dampening the recovery in the spring, finally reversed course in June. Americans likely noticed this at the pump, as energy drove down aggregate prices for a change. June's result begins to validate the claims of economists who said that rising prices were temporary, since driven by commodities. But those higher costs may have influenced inflation expectations, since we're seeing higher inflation among products other than food and energy. What implications does today's news have for the broader economy?
First, let's take a quick look at some history. Here's the Consumer Price Index, from the Bureau of Labor Statistics:
You can see that June's 0.2% decline was the first in nearly a year. And prices were rising pretty aggressively in the spring. June's decline brought prices approximately back to their April level. That's certainly good news for consumers, but prices would have to fall much farther to approach their level at the beginning of 2011.
June's decline was due in large part to energy. It declined by 4.4%. Gasoline, in particular, fell 6.8%. Food, however, continued to rise a bit, by 0.2%. But since energy declined so much the measure of core inflation, which excludes food and energy, rose moderately. It was up 0.3% in June -- more than broader CPI. Here's the chart for core: