Implications: Energy prices fell again in June. As a result, consumer prices were flat, matching consensus expectations. Excluding energy, consumer prices were up across the board. “Core” inflation, which excludes food and energy, was up 0.2% again in June and is up 2.2% from a year ago, hovering near the largest 12-month gain since September 2008. In the past three months, core prices are up at a 2.6% annual rate. These figures are already above the Federal Reserve’s supposed target of 2%. Meanwhile, monetary policy is very loose and housing costs (which are measured by rents, not asset values) are rising. Owners’ equivalent rent was up 0.1% in June and is up 2.0% versus a year ago. The ongoing shift from home ownership toward rental occupancy should boost this inflation measure even more in the year ahead. With loose monetary policy and housing costs accelerating, it’s hard to see core inflation getting back down to the Fed’s 2% target anytime soon. On the earnings front, “real” (inflation-adjusted) wages per hour were up 0.2% in June. These earnings are up 0.3% from a year ago. Worker hours are up 2.1% in the past year. Combining these two factors means workers' purchasing power is up about 2.5 % from a year ago, suggesting that the weakness in retail sales is temporary.
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