The Consumer Price Index (CPI) increased 0.1% month-on-month (m/m) in May, a tick below the consensus forecast (+0.2% m/m). The 12-month change slipped to 4.0% – down from 4.9% in April`.
Energy prices fell 3.6% m/m, as prices at the pump (-5.6% m/m) were down in May, as were energy services (-1.4% m/m). Food prices ticked up by 0.2% m/m and remain 6.7% above year-ago levels.
Core inflation (excludes food & energy) rose 0.4% m/m – meeting the consensus forecast and matching both March and April’s monthly gain. The annualized 1-month (+5.4%), 3-month (+5.0%), 6-month (+5.1%) and 12-month (+5.3%) change on core inflation all remained above 5% in May.
Price growth across services rose 0.4% m/m. Shelter was again a meaningful contributor, with rent of primary residence and owners’ equivalent rent both notching a gain of 0.5%.
- Non-housing services rose 0.3% m/m – accelerating from April’s flat reading – with gains concentrated in lodging away from home (+1.8% m/m), transportation (+0.8% m/m) and other personal services (+0.8% m/m). Airfares (-3%) were the one standout, where prices fell for a second consecutive month, and are now down 13.4% on a year-over-year basis.
Core goods prices increased by 0.6% m/m – matching April’s gain. Much like April, gains were narrowly concentrated in used vehicle prices, which were up 4.4% m/m.
Key Implications
May’s inflation reading largely met expectations, with both the headline and core measure easing to 4.0% and 5.3%, respectively. That said, non-housing service inflation heated up in May, with price gains led across those spending categories most closely tied to discretionary spending. Goods prices were also higher, though this was largely driven by another sharp gain in used vehicle prices. After stripping out its effects, price growth across all other goods were flat. This is an encouraging sign, as wholesale used vehicle prices have turned lower in recent months, suggesting goods prices will (again) soon become a source of deflation.
We will hear from the Fed tomorrow, where markets are widely expecting policymakers to move to the sidelines. However, a pause doesn’t guarantee that the Fed’s work is done. Since Chair Powell’s remarks on May 19th where he referred to having ‘time on their side to watch the data’, the pace of hiring has accelerated, job openings have ticked higher, while inflation has remained intolerably high. Unless we see a clear softening in the economic data between now and the Fed’s next meeting in July, another rate hike remains in play.
 increased 0.1% month-on-month (m/m) in May, a tick below the consensus forecast (+0.2% m/m). The 12-month change slipped to 4.0% – down from 4.9% in April`.){kind=link}