September ll, 2020

.

The CPI rose 0.4% in August after climbing 0.6% in both June and July, but having declined 0.1% in May, 0..8% in April, and 0.4% in March.  The CPI excluding the volatile food and energy prices rose 0.4% in August after gaining 0.6% in July and 0.2% in June, but after having fallen 0.1% in May, and 0.4% in April which was the biggest decline in the history of the series which dates back to 1957.

Food prices rose 0.1% in August after having fallen 0.4% in July.     Most of the price increases in food prices in the spring  were triggered by supply interruptions brought on by the corona virus.  They should reverse themselves as the supply chain returns to normal.

Energy prices rose 0.9% in August after climbing 2.5% in July and 5.1% in June.   Crude prices have largely reversed themselves after big declines earlier in the year and are back close to where they started before the recession began.  In the past year energy prices have declined  9.1%.

The CPI excluding the volatile food and energy prices rose 0.4% in August after rising 0.6% in July after having risen and 0.2% in June.  In the past yar the so-called “core” CPI has risen 1.7%..  The big increase in August was largely caused by a big 5.4% increase in used car and truck prices, but most categories registered moderate increases..

But most of the declines in earlier months were triggered by the abrupt but extraordinarily deep recession.  As the economy recovers these price declines should prove to be temporary.  As people begin to crawl out of their holes restaurant prices, airfares, and lodging prices should rebound.

For what it is worth, we expect the CPI to rise just 1.3% in 2020 compared to a 2.3% increase in 2019.  The CPI ex food and energy is projected to increase 1.9% this year compared to an increase of 2.2% in 2019.

Stephen Slifer

NumberNomics

Charleston, SC