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Unlike when the government made way for ethanol, today's environment offers divergence in food and energy prices, for now… In June, as energy prices continued to slide, food prices acted as an offset. The Consumer Price Index (CPI) was thus unchanged in June, but the Core CPI, excluding food and energy, still rose 0.2%. So is inflation returning?

May

Consensus Est.

June

CPI Month-to-Month

-0.3%

0.0%

0.0%

CPI Year-to-Year

1.7%

1.7%

Core CPI M/M

0.2%

0.2%

0.2%

Core CPI Y/Y

2.3%

2.2%

The CPI met expectations while staying in place, after much lower energy prices took the headline CPI down 0.3% in May. On a year-over-year basis, the rate of price rise was smoothed and remained at 1.7%. Energy prices fell 1.4% broadly. Energy commodity prices declined 2.3% and gasoline prices declined 2.0%, likely affecting the performance of fully integrated firms like Exxon Mobil (XOM), Chevron (CVX), ConocoPhillips (COP) and BP (BP). Seasonally influenced fuel oil prices dropped 7.9%.

Food prices increased 2.0%, on both grocery and restaurant price rise. Food "at home," encompassing everything you buy at the supermarket, rose 0.1%. That will likely pressure food producers like Kraft (KFT), General Mills (GIS), ConAgra Foods (CAG), Tyson Foods (TSN) and grocery stores like Kroger (KR) and SuperValu (SVU). Though, many will be able to push through prices through creative mechanism.

Food "away from home" increased 0.2%, as restaurants perhaps reached their limit in terms of bearable costs increase. Price impact here could affect the results of large restaurant operators like McDonald's (MCD), Yum! Brands (YUM), Darden Restaurants (DRI) and Brinker International (EAT).

Core CPI, which is a better measure of anchored inflation, increased 0.2% in June, meeting economists' expectations and matching May's price rise. Core CPI price inflation was a bit lower on a year-to-year comparison, down to a rate of +2.2%, versus 2.3% in May. Still, seeing general price increase at this level should be surprising given global economic developments, and may thus signal early impact of the dilution of fiat currency I've been pointing to.

Energy services prices were unchanged. However, the cost of electricity fell 0.5% in the month. In New York City, we're currently dealing with our striking electricity producer Consolidated Edison (ED). Given the current employment situation, generally speaking, the cost of labor should not be rising much. The provision of power, provided by the likes of Duke Energy (DUK), is regulated but will change over time with the price of fuel commodities. The price of piped natural gas service increased 1.7% in June.

Commodity prices less food and energy actually rose 0.2% in June, which is surprising given the pressure on industrial resources of late. Gold prices increased in June, though most of that gain came on June 1st alone, with the SPDR Gold Shares Trust (GLD) up 3.9% that day. Gold and silver prices have been reflecting the inflation threat for years now, but inflation not based on demand for goods alone, but lost confidence in fiat currency and the debt issuance of sovereign states.

New car prices rose 0.2% in June, benefiting the likes of Ford (F), General Motors (GM) and Toyota (TM). That continued a trend with new car prices up 0.9% on the year. Used car and truck prices were unchanged through the month. Apparel prices are up 0.5%, maybe at precisely the wrong time with consumer confidence fading. That should continue to support discount sales from retailers like Wal-Mart (WMT), Dollar Tree (DLTR) and Amazon.com (AMZN).

The cost of shelter is on the rise, up 0.1% in June and up 2.2% year-to-year. Unfortunately, this price rise is mostly due to rising rental rates, benefiting companies like Equity Residential (EQR), AvalonBay Communities (AVB), American Capital Agency (AGNC) and UDR (UDR).

Detractors of the president will be interested in the fact that the price of medical care services increased 0.7% in June and is 4.3% higher year-to-year.

Generally, the data is being viewed as non-threatening, but I continue to insist that the threat of real inflation looms despite the counter-intuitive nature of that view given economic deterioration. It is because of seasonal issues like the weather and what I anticipate will be an energy disruptive conflict in the Middle East soon; but also because of the undermining of fiat currency and a potential disruption to the fluidity of global trade. Please remember where you first read those words. Follow me to stay attuned.

Source: Is Inflation Returning?