Economic Illiterates At The Fed And Econoday Are Not Cheering Today's CPI Report

The CPI rose 0.1% month-over-month. Econoday was disappointed. But it did find "bright spots" in food and air travel.

Economists and others are investigating the Consumer Price Index (CPI) for signs of wanted inflation.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in May on a seasonally adjusted basis after rising 0.3 percent in April, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.8 percent before seasonal adjustment.

The food index rose 0.3 percent in May after declining in April, with the food index accounting for nearly half of the May seasonally adjusted all items monthly increase. The energy index fell 0.6 percent in May, with the gasoline index falling 0.5 percent and the indexes for electricity and natural gas also declining in May.

The index for all items less food and energy increased 0.1 percent for the fourth consecutive month. The indexes for shelter, medical care, airline fares, education, household furnishings and operations, and new vehicles all rose in May. The indexes for used cars and trucks, recreation, and motor vehicle insurance were among those that declined over the month.

Year-Over-Year CPI

(Click on image to enlarge)

The all items index increased 1.8 percent for the 12 months ending May. The index for all items less food and energy rose 2.0 percent over the last 12 months, and the food index also rose 2.0 percent. The energy index decreased 0.5 percent over the past year.

Econoday Lowlights

Price pressures at the consumer level are losing pace, as the ex-food ex-energy core rate missed expectations with only a 0.1 percent gain in May. The year-on-year rate edged 1 tenth lower to 2.0 percent which also misses expectations. Overall prices rose an as-expected 0.1 percent though the annual rate fell 2 tenths and at 1.8 percent is moving away from the Federal Reserve's target.

Energy fell a monthly 0.6 percent in May with gasoline down 0.5 percent. But food is showing some pressure, up 0.3 percent for a 2.0 percent annual rate. Medical care is also showing a little lift, also up 0.3 percent in the month for a 2.1 percent pace and a 2 tenths gain. Housing, which makes up nearly 1/2 of the index, continues to be the central area of price support though strength is weakening, up only 0.1 percent on the month and 2.8 percent on the year vs 2.9 percent in April.

Other readings include no change for apparel, an area that Jerome Powell was expecting to see some traction appearing. Year-on-year, apparel prices are down 3.1 percent. But airfares, another area Powell expects to see strength, did jump 2.0 percent in the month though this yearly rate is still soft at 0.9 percent. New vehicle prices rose a monthly 0.1 percent with used vehicles down 1.4 percent.

At the last FOMC in late April and early May, policy makers were putting a positive spin on a slumping core inflation rate, in this case the Fed's preferred gauge which is the PCE core which was at 1.6 percent in April. This rate runs several tenths below the CPI core and today's report is not pointing to acceleration for the PCE core back to the 2.0 percent target. The spin Powell puts on the latest inflation data could well be the most important part of next week's FOMC results.

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