Airline fares jump in July CPI

Airline fares jumped 2.7 percent in July, ending a three-month streak of declines according to the latest Consumer Price Index for All Urban Consumers (CPI-U) issued by the Bureau of Labor Statistics (BLS), U.S. Department of Labor.

The hike partially offsets declines of 0.9 percent decline in June, a 1.9 percent decline in May and a 2.7 percent drop in April. Those declines are made more significant by the early June signal by several airlines that higher prices were on the horizon due to increasing fuel prices for jet fuel, which have gone up 50 percent in the past year.

However, ticket prices don't tell the whole story. Airlines continue to focus on increasing ancillary revenue, which carries an important caveat. While the BLS's calculations of airline fares include an allowance for checked bag fees, the BLS does not include other ancillary charges which represent an ever-larger percentage of airlines' overall revenue.

The agency found a certain percentage of passengers checked bags. It applies that percentage to all  incoming quotes during sample rotation and then assigns the appropriate checked bag fee (assuming one bag, for either one-way or round-trip, based on the description of the quote). It also applies baggage specs to airlines that do not charge for bags so that if they start to charge in the future, the BLS could easily incorporate that price increase.

Overall, the CPI-U increased 0.2 percent in July on a seasonally adjusted basis after rising 0.1 percent in June. Over the last 12 months, the all items index rose 2.9 percent before seasonal adjustment.

The index for shelter rose 0.3 percent in July and accounted for nearly 60 percent of the seasonally adjusted monthly increase in the all items index. The food index rose slightly in July, with major grocery store food group indexes mixed. The energy index fell 0.5 percent, as all the major component indexes declined.

The index for all items less food and energy rose 0.2 percent in July, the same increase as in May and June. Along with the airline fares index, the indexes for used cars and trucks, shelter, new vehicles, household furnishings and operations, and recreation all increased. The indexes for medical care and for apparel both declined in July.

The all items index rose 2.9 percent for the 12 months ending July, the same increase as for the period ending June. The index for all items less food and energy rose 2.4 percent for the 12 months ending July; this was the largest 12-month increase since the period ending September 2008. The food index increased 1.4 percent over the last 12 months, and the energy index rose 12.1 percent, the BLS said in its Aug. 10 statement.

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