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First Cut: May CPI shows mild upward price pressures as energy costs abate

The CPI for May was up 0.1% from April, and up 1.8% compared to a year-ago. Upward pressure on prices eased with a decline in energy costs and moderation in prices for shelter. Food prices were higher. The report was much as expected and does not change the conversation around inflation trends in advance of the June 19-20 FOMC meeting.  Upward pressure on prices is mild but not absent and not too far off the Fed’s 2% objective.

Energy costs were down 0.6% in May from April, and down 0.5% compared to a year ago. Gasoline prices declined 0.5% in May, in part reflecting lower oil prices but also the normal seasonal pattern of moderation after a climb in April while refineries reformulate for the summer months. Unadjusted gasoline prices were up 2.4% in May.

Food prices were up 0.3% month-over-month, and 2.0% higher compared to May 2018. Prices were up for meats, poultry, fish, and eggs, the BLS said. Prices were down for fruits and vegetables.

Shelter costs — which account for about 1/3 of the CPI — presented a slower pace of increases at up 0.2% in May. Rents were up 0.2% month-over-month and owners equivalent rent was up 0.3%. Shelter costs were up 3.3% year-over-year and continue to be play a significant part in the upward movement for overall prices.

Volatility in commodities (weight 37.190) does not offset the persistent increase in costs for services (weight 62.810). Commodities were flat in May from April and up a modest 0.6% from a year ago. Where services eked out a minimal 0.1% rise in May, the year-over-year increase of 2.5% suggests that overall prices are not going to moderate.

The CPI is the last significant piece of inflation data the FOMC will have when it meets next week. It has diverged somewhat from the PCE deflator in terms of the tale it has to tell about prices. Overall the year-over-year pace of inflation has softened slightly from the Fed’s 2% objective, but not enough to say it definitively signals that inflation has fallen persistently below target. At the core, the up 2.0% is right on target. Core CPI is reading a tick or two below the trend of 2018, but is above readings in 2017.


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