CPI, little deflation signs in core data and watch out for food

June CPI fell .1%, in line with expectations but rose .2% ex food and energy which was above the expected rise of .1%. The m/o/m core gain is the most since Oct ’09 led by apparel prices which rose by .8% (cotton prices are up 100% since Mar ’09). Owners equivalent rent, 25% of CPI, rose .1%, the 1st gain since Aug ’09. Rents have firmed as seen by comments from various apartment REITs. Vehicle prices rose by .3% and are up sharply over the past few months led by used cars and trucks which were up .9%, in part thanks to cash for clunkers which permanently scrapped a whole slew of used cars just as the demand has picked up in a slower economy. Energy prices fell by 2.9% while food was flat. Food prices need to be watched over the 2nd half of the year as corn, sugar, cocoa, wheat, soybeans and coffee have all been rallying sharply. Deflation talk in the market has taken over but was not evident in the core data today.

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