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Tuesday, August 16, 2005

CPI, Residential Construction, and Industrial Production Reports Released

The headline CPI figure (report) including energy and food prices increased .5 percent in July.  But without energy and food included, energy in particular, the increase in the index is smaller, .1 percent for the third consecutive month.  Data on housing starts were also released (report).  Housing starts appear to be flattening out, but at a high level historically.  However, new building permits rose strongly.  Finally, data on industrial production were released (report) showing a .1 percent increase in July.  This compares to a figure of .8 percent in June.  Capacity utilization is at 79.7 percent which is 1.3 percent below its historical average.

Though hints of a slowdown can be found in some of the reports, e.g. industrial production and the leveling of housing starts, the .5 percent increase in the CPI including food and energy, the headline figure, and the robust growth of new building permits in housing will not dissuade the Fed from further rate increases. Unless new data changes the course, rates are going up, but I believe this report makes it less likely rates will go up by 50 bps instead of 25 bps as some have been advocating and predicting.  There are more reports on prices and activity later this week, so we'll know a little more then.  Some will see the energy component as justifying a larger increase (headline CPI translates into an annual rate of over 6%), but until the rise in energy prices begins to show up as an increase in the price of other goods generally, and so far that is not in evidence, the transparently measured path will continue.

See also: Bloomberg, The NY Times, The WP, and CNN Money.
Blogs:  General Glut, macroblog (I will update the blog list as I discover additional comments on these reports).

[Update:  I want to add one note.  One figure that is not, in my view, receiving enough attention is the medical care inflation figures.  In July, medical costs increased .4% and relative to a year ago medical care prices increased 4.2%.  Month after month (and as General Glut properly notes in comments, year after year and decade after decade since 1980 as well) medical costs have been consistently higher than the CPI average contributing to the upward pressure on prices.]

    Posted by on Tuesday, August 16, 2005 at 11:07 AM in Economics, Housing, Monetary Policy | Permalink  TrackBack (0)  Comments (32)

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