Two Reasons The CPI Report Will Give The Fed Severe Headaches

There are two very troubling aspects of the latest BLS CPI report. Did you spot them?

Month-Over-Month Shelter Percent Change

• Shelter: 0.61 percent

• Owners’ Equivalent Rent: 0.53 percent

• Rent of Primary Residence: 0.55 percent

Those are all hot numbers. More importantly, the disinflationary trend in shelter appears to be over.

CPI Year-Over-Year Shelter

Shelter Year-Over-Year Percent Change Shelter

• CPI: 3.8 percent

• Shelter: 3.3 percent

• Owner’s Equivalent Rent: 3.3 percent

• Rent of Primary Residence: 2.8 percent

Components of CPI Percentage Weights

Shelter is 35.32 percent of the CPI.

It’s difficult to have CPI disinflation with rising shelter. It’s nearly impossible to have disinflation with shelter, food, and energy all jumping.

CPI Month-Over-Month

CPI Month-Over-Month

• All Items: 0.64 percent

• All Items Excluding Food and Energy: 0.38 percent

• Food and Beverage: 0.49 percent

• Shelter: 0.61 percent

• Owners’ Equivalent Rent: 0.53

• Rent of Primary Residence: 0.55

• Medical Care Services: 0.00 percent

• Medical Care Commodities: -0.35 percent

• Energy: 3.81 percent

• Gasoline: 5.44 percent

• Food at Home: 0.68 percent

• Food Away from Home: 0.23

That list is the second troubling aspect of the report.

Inflation is very broad based.

Medical care was the only good aspect of the report. Medical car commodities are only 1.45 percent of the CPI. Medical Care Services are 6.893 percent of the CPI.

Nothing else looks any good.

Looking Ahead

Year-over-year numbers are heavily influenced by month-over-month numbers a year ago.

The all items CPI rose 0.10 percent in May of 2025. All Items excluding food and energy rose 0.13 percent in May of 2025.

Numbers higher than the above will make the year-over-year number rise.

Does anyone think we will not have another year-over-year blast still higher next month?

I believe we are going to see reported year-over-year inflation about 4.2 next month up from 3.8 percent. And if energy misbehaves, not even 4.5 percent would be shocking.

For more discussion of the April CPI, please see CPI Hotter than Expected, Highest in Three Years, a Genuine Disaster

Inflation in April was another scorcher. Here are some month-over-month and year-over-year charts.

Also see Real Hourly Earnings Decline Again, No Growth Since Trump Took Office

If it feels like you are not getting ahead, it’s because you aren’t. Six charts.