The press treated it as big news that inflation in the core CPI came in at 0.2 percent in July after being 0.3 percent in each of the prior 4 months. The celebration may be premature. While there is some evidence of easing price pressure in the data (lower medical care inflation stands out in this regard), most of the story in July's lower inflation was a 1.2 percent drop in apparel prices. Apparel prices are always erratic, and it is very unlikely that a drop of this size will be repeated. If we construct a non-apparel core CPI, here is what it would have shown since February: Feb -- 0.209 Mar -- 0.310 April -- 0.278 May -- 0.279 June -- 0.307 July -- 0.268 So, inflation is down by 0.04 pp from June but just 0.01 pp from April and May. Not much of a story here. Of course, those who really want to know about inflation read the CEPR price byte. BLS is going to start publishing the inflation numbers to 3 decimals beginning in January. This is a good move.
-- Dean Baker
