August 21, 2007—The consumer price index inched up only 0.1% in July as energy prices fell. Concurrently, the producer price index jumped 0.6%. Retail sales rose 0.3% in July while core sales were up 0.6%. Total business inventories grew 0.4%. Lastly, the trade deficit narrowed $1.02 billion to $58.1 billion.
 
Consumer Price Index
The consumer price index inched up 0.1% in July following a 0.2% increase in June. The slight deceleration in overall growth was caused by a 1.0% drop in energy prices. The core CPI, which excludes food and energy prices, rose 0.2% for the month. On a year-ago basis, the top-line CPI has increased 2.4% while the core CPI is up 2.2%. With slow economic growth projected, core inflationary pressures should continue to moderate.

Producer Price Index
Producer prices for finished goods rose 0.6% in July, its fifth increase in the last six months. The overall increase was driven mainly by big jumps in prices for finished energy products, which surged 2.5%. Core prices, which exclude food and energy prices, saw a 0.1% uptick. Compared to a year ago, the overall PPI has risen 3.9% while the core PPI is up 2.4%.
 
Retail Sales
Total retail sales rose 0.3% in July after falling 0.7% in June. Strong growth in sales at department stores, apparel stores, and restaurants drove the overall increase. Core sales, which exclude gas and auto sales, jumped 0.6% for the month. On a year-ago basis, top-line retail sales have increased 3.2% and core sales are up 5.2%. We expect continued modest growth in retail sales going forward.

Business Inventories
Total business inventories increased 0.4% in July following a 0.5% rise in June. Manufacturer inventories increased 0.3% while inventories for retailers and wholesalers both grew 0.5%. Total business sales fell 0.3% after a 1.3% surge the previous month. Lastly, the inventory-to-sales ratio inched up to 1.27.

International Trade
The trade deficit narrowed in June, falling $1.02 billion to $58.1 billion, a 1.7% decrease. Both imports and exports increased, but export growth was stronger, rising 1.5% to $134.5 billion. Imports inched up 0.5% to $192.7 billion. The goods deficit with China jumped 5.7% to $21.2 billion and now accounts for 36% of our trade deficit. The weak dollar, which makes imports more expensive and exports cheaper, along with the continued revaluation of the Yuan, should help our trade deficit narrow going forward.