Weekly Transportation Update: Core Consumer Inflation Lowest in Almost Two Years

Key Takeaways

• Consumer inflation’s cooling trend continues.
• Producer-level inflation was tame in June.
• Truckload PPI has fallen in 12 of past 13 months.
• Wholesale inventories remain high versus sales.
• U.S. imports of consumer goods fell in May.
• Mortgage rates approached 7% in the latest week.
• Diesel prices rise by the most since January.
• House funding bill would block speed limiters.
• Van spot rates fall while flatbed rates rise.
• Rail carload volumes are dented by the holiday.
• Holiday, Canadian port issue hit intermodal traffic.
• STB to investigate Amtrak on-time performance.

Overview

This week was fairly light in economic indicators, and what was released was mostly about pricing. Inflation at the consumer and producer levels continued their cooling trends.

One important area of pricing for transportation moved the other way, however. Diesel prices saw their largest increase since January, and crude closed at its highest price since late April. Higher financing costs also are a concern as mortgage rates rose sharply again in the latest week.

Consumer Price Index

Overall consumer inflation was marginally stronger in June than it was in May, but the core Consumer Price Index – the CPI less food and energy – rose just 0.2%, seasonally adjusted, which is the smallest increase since one of the same degree in August 2021. The m/m increase in the core CPI has not been below 0.2% since February 2021.

The all-items CPI increased 0.2% m/m, slightly more than the 0.1% gain in May. The index for shelter accounted for more than 70% of the increase in the all-items CPI, but the 0.4% increase in the shelter index was not as strong as May’s 0.6% gain.

Food price inflation remained weak in June as the total food index ticked up just 0.1%. Prices for food at home were flat while prices for food away from home rose 0.4%. The energy index rose 0.6% after falling 3.6% in May. Energy prices have been volatile this year, principally due to gasoline.

The 12-month change in the unadjusted all-items index was 3%, which is the smallest such gain since March 2021. The 12-month change of 4.8% in the CPI less food and energy was the smallest increase since October 2021.

Producer Price Index

Price inflation at the producer level remains low. The Producer Price Index for final demand ticked up just 0.1%, seasonally adjusted, in June after falling 0.4% in May.

Prices for final demand goods were flat m/m. The tiny increase in June is attributable to a 0.2% increase in PPI for final demand services. The PPI for final demand has been no stronger than 0.1% since January. For the 12 months ended in June, the unadjusted PPI was up just 0.1%.

Producer-level inflation was just as tame when adjusted for volatile sectors such as foods, energy, and trade services. However, the 12-month change in that slice of PPI was stronger at 2.6% higher.

Pricing for freight transportation services was almost uniformly weaker m/m. The notable exception was a 1.9% increase in the freight brokerage PPI following decreases in all but two months since August. The sharpest drop was in the general freight truckload PPI, which fell 4.3%. The truckload PPI has fallen in 12 of the past 13 months.

Wholesale inventories

Inventories for merchant wholesalers held steady in May, but the ratio of inventories to sales still edged higher because sales in the wholesale sector fell 0.2%. The inventories-to-sales ratio ticked up to 1.41 from 1.40 in April, matching March for the highest ratio since the Great Recession aside from the April and May 2020 lockdown period.

Over the past year, the greatest change in the wholesale inventories-to-sales ratio has been in durable goods. The May ratio for durables was 1.85, up from 1.66 in May 2022. However, the ratio for non-durable was 1.01 in May, which barely changed from 0.99 in May 2022.

International trade in goods

The U.S trade deficit in goods declined in May as exports eased by just 0.6%, seasonally adjusted, while imports fell 2.7%. Exports were down 7.5% y/y while imports were 8.8% lower than May 2022.

The decrease in exports was fully attributable to two sectors: Industrial supplies (down 3.0% m/m) and foods, feeds, and beverages (down 14.2% m/m). In line with recent performance, the greatest export strength m/m was in automotive, which rose 8.7%, although automotive exports are a relatively small category compared to others.

Within imports, the largest drop in May was in consumer goods, which were down 7.3% m/m, seasonally adjusted. Other notable decreases were 5.9% in industrial supplies and 3.0% in foods, feeds, and beverages. The largest gain was in other goods, although that is the smallest category in dollar value.

With automotive imports strong and consumer imports weak, North American trading partners continued to outperform China in imports. Imports from all three countries – Mexico, Canada, and China – rose on a not seasonally adjusted basis in May, but the wide gap that has developed between imports from North American partners and China continued. For the first five months of 2023, imports are up 5.6% from Mexico and down 3.2% from Canada with a total North American performance of a 1.3% increase. Imports from China, however, are down 24.3% y/y during the first five months of this year.

Mortgage rates

Mortgage rates rose sharply for the second straight week to their highest level since November. The rate on a 30-year fixed-rate mortgage in the latest week was 6.96%, according to Freddie Mac.

Mortgage rates topped 7% a couple of times in October and November but otherwise have not been that high since 2002. Sales of existing homes have remained weak, but sales of new homes have been strong recently even with mortgage rates in the upper-6% range.

Diesel prices

Diesel prices in the latest week saw their largest increase since January, and more increases might be in the offing. The national average price of on-highway diesel increased 3.9 cents to $3.806 a gallon during the week ended July 10. The increase was only the sixth in all of 2023 and the largest increase since diesel prices jumped 8 cents during the week ended January 23.

Diesel prices were higher week over week in all but a couple of regions – New England and the Rocky Mountain region – and those price decreases were small. The largest increases were 6.8 cents in the Lower Atlantic and 5.9 cents in California.

The outlook looks likely for further increases in diesel prices as the price of crude has risen fairly sharply over the past week. West Texas Intermediate on June 13 closed at $76.89 a barrel, which is the highest price since late April.