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First Cut: May CPI dips on auto insurance, energy, and apparel

The Consumer Price Index for May was down 0.1% after down 0.8% in April, and was up 0.1% compared to May 2019. The core CPI – excluding food and energy – was also down 0.1% month-over-month but was up 1.2% compared to a year ago. The BLS said the declines were mainly due to motor vehicle insurance, energy, and apparel that more than offset increase in food and shelter.

Energy prices were down 1.8% in May from April, in large part driven by a 3.5% decrease for gasoline. Prices for motor vehicle insurance were down 8.9% in May and reflected that many insurance companies have reduced premiums since stay-at-home orders have sharply reduced the number of accidents. Apparel costs were down 2.3% as consumers remained out of stores and uninterested in sprucing up closets. Food prices were up 0.7% on scarcity for some food items. The category included a 10.8% rise in beef prices in May from April, the largest in the subcomponent’s history.

Shelter costs were up 0.2% in May with modest increased in rent and owners’ equivalent rent up 0.3% for the month. The subcomponent for lodging away from home registered another decline at down 1.5% as travel of all types remains limited.

Shelter costs account for about a third of the overall CPI. Excluding shelter only, the CPI was down 0.2%. Excluding food, energy, and shelter, the CPI was down 0.3%.
At present, upward price pressures are largely absent at the consumer level for both commodities which were down 0.1% in May and services which were flat for the month. Compared to May 2019, commodities prices were down 2.8% and services were up 1.9%.

However, costs for medical care commodities were up 0.1% in May from April and up 1.9% from a year-ago. Medical care services were up 0.6% in May from the prior month and up 5.9% compared to the year-ago month. Some of this will be passing on of costs associated with the COVID-19 pandemic and the increased need for personal protective equipment and services to help control the spread of the virus.

Fed policymakers will take into account the data that inflation is mild at present and the year-over-year increases are running below the Fed’s 2% objective over the medium term. However, they will also have to keep in mind the distortions in the data that have followed on measures to control the spread of COVID-19 and the disruptions along supply chains that may make some prices behave atypically.

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