May Inflation Rises To Fed Target Range

The Bureau of Labor Statistics released the May CPI data this morning. Year-over-year unadjusted Headline CPI came in at 2.13%, which the BLS rounds to 2.1%, up from 1.95% the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 1.96% (rounded to 2.0%), up from the previous month's 1.83%.

The YoY Headline number is at a 19-month high and YoY Core is at a 15-month high.

Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in May on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.1 percent before seasonal adjustment. 

The seasonally adjusted increase in the all items index, which was the largest since February 2013, was broad-based. The indexes for shelter, electricity, food, airline fares, and gasoline were among those that contributed. The food index posted its largest increase since August 2011, with the index for food at home rising 0.7 percent. The increases in the electricity and gasoline indexes led to a 0.9 percent rise in the energy index. 

The index for all items less food and energy rose 0.3 percent in May, its largest increase since August 2011. Along with the indexes for shelter and airline fares, the medical care, apparel, and new vehicle indexes all increased in May. The indexes for household furnishings and operations and for used cars and trucks declined. 

The all items index increased 2.1 percent over the last 12 months; this compares to a 2.0 percent increase for the 12 months ending April, and is the largest 12-month increase since October 2012. The index for all items less food and energy has increased 2.0 percent over the last 12 months. The food index has advanced 2.5 percent over the span, its largest 12-month increase since June 2012.   [More…]

Investing.com was looking for increases of 0.2% for both Headline and Core CPI. Year-over-year forecasts were 2.0% for Headline CPI and 1.9% for Core.

The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since the turn of the century. I've highlighted 2 to 2.5 percent range.

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The next chart shows both series since 1957, which was the first time the government began tracking the core inflation metric.

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In the wake of the Great Recession, two percent has been the Fed's target for core inflation. However, at their December 2012 FOMC meeting, the inflation ceiling was raised to 2.5% while their accommodative measures (low Fed Funds Rate and quantitative easing) are in place.

Federal Reserve policy, which has historically focused on core inflation, and especially the core Personal Consumption Expenditures (PCE), will see that the latest core CPI has reached the target range of 2 to 2.5 percent.