| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - M/M | 0.1% | 0.1% to 0.3% | 0.0% | 0.3% |
| CPI - Y/Y | 3.4% | 3.3% to 3.5% | 3.3% | 3.4% |
| Ex-Food & Energy- M/M | 0.3% | 0.2% to 0.3% | 0.2% | 0.3% |
| Ex-Food & Energy- Y/Y | 3.5% | 3.5% to 3.6% | 3.4% | 3.6% |
Highlights
The CPI for May is unchanged from April and up 3.3 percent year-over-year. The change is a tick below the consensus of up 0.1 percent month-over-month and 3.4 percent year-over-year in the Econoday survey of forecasters. The May core CPI is up 0.2 percent from the prior month and up 3.4 percent from a year ago. The increase is also just below the consensus of 0.3 percent month-over-month and 3.5 percent year-over-year in Econoday's survey.
There is some indication that disinflation is creeping back into consumer prices over the past two months, but the improvement is incremental and could easily stall again. Fed policymakers will remain cautious regarding the inflation outlook until they have another month or two worth of data to confirm the trend. In any case, the annual pace of change remains above the Fed's two percent inflation objective.
In May, the index for food and beverage prices is up a scant 0.1 percent from April and up 2.1 from May 2023. Energy prices are down 2.0 percent in May from April but up 3.7 percent year-over-year. In energy, gasoline prices are down 3.6 percent from the prior month are up 2.2 percent from May 2023.
The index for shelter costs about 1/3 of the CPI basket are up 0.4 percent in May from April and up 5.4 percent compared to the same month last year. Shelter costs have yet to moderate despite a soft housing market and deceleration in rent increases. Demand for housing continues to outstrip supply, especially for affordable units. The CPI excluding shelter only is down 0.2 percent in May from April and up 2.1 percent in compared to May 2023. The CPI excluding food, energy and also shelter is flat in May from the prior month and up 1.9 percent from the same month last year.
Much of the disinflation trend is in commodities prices. The index for commodities is down 0.4 percent in May from April, and up only 0.1 percent year-over-year. The index for services is up 0.2 percent in May from April and up 5.2 percent from May 2023. The special aggregate of services less rent of shelter is flat in May from April and up 5.0 percent compared to the same month last year. Even though shelter costs remain a notable source of upward price pressure, non-housing services also have yet to show much moderation at an annual rate.
There is some indication that disinflation is creeping back into consumer prices over the past two months, but the improvement is incremental and could easily stall again. Fed policymakers will remain cautious regarding the inflation outlook until they have another month or two worth of data to confirm the trend. In any case, the annual pace of change remains above the Fed's two percent inflation objective.
In May, the index for food and beverage prices is up a scant 0.1 percent from April and up 2.1 from May 2023. Energy prices are down 2.0 percent in May from April but up 3.7 percent year-over-year. In energy, gasoline prices are down 3.6 percent from the prior month are up 2.2 percent from May 2023.
The index for shelter costs about 1/3 of the CPI basket are up 0.4 percent in May from April and up 5.4 percent compared to the same month last year. Shelter costs have yet to moderate despite a soft housing market and deceleration in rent increases. Demand for housing continues to outstrip supply, especially for affordable units. The CPI excluding shelter only is down 0.2 percent in May from April and up 2.1 percent in compared to May 2023. The CPI excluding food, energy and also shelter is flat in May from the prior month and up 1.9 percent from the same month last year.
Much of the disinflation trend is in commodities prices. The index for commodities is down 0.4 percent in May from April, and up only 0.1 percent year-over-year. The index for services is up 0.2 percent in May from April and up 5.2 percent from May 2023. The special aggregate of services less rent of shelter is flat in May from April and up 5.0 percent compared to the same month last year. Even though shelter costs remain a notable source of upward price pressure, non-housing services also have yet to show much moderation at an annual rate.
Market Consensus Before Announcement
Consumer prices had been exceeding estimates until April's results which came in as forecast. Overall prices are expected to rise only 0.1 percent in May after increasing 0.3 percent in April. Core prices also increased 0.3 percent in April with May's consensus at 0.3 percent. Annual rates, which in April were 3.4 percent overall and 3.6 percent for the core, are expected at 3.4 and 3.5 percent respectively.
Definition
The CPI is a measure of the change in the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation for the consumer. Annual inflation is also closely watched.
The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.
The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.
The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board.
The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.
The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.
The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board.
Description
The consumer price index is the most widely followed monthly indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments.
If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation as you know the $100 will not be able to buy the same amount of goods and services a year from now. The CPI tells us that prices rose 4.2 percent in the U.S. over 2007. To recoup your purchasing power, you would have to charge 4.2 percent interest. You might want to add one or two percentage points to cover default and other risks, but inflation remains the key factor behind the interest rate you charge.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments.
If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation as you know the $100 will not be able to buy the same amount of goods and services a year from now. The CPI tells us that prices rose 4.2 percent in the U.S. over 2007. To recoup your purchasing power, you would have to charge 4.2 percent interest. You might want to add one or two percentage points to cover default and other risks, but inflation remains the key factor behind the interest rate you charge.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
