Scorecard
The Consumer Price Index (CPI) posted a big monthly increase in May, rising a seasonally adjusted 0.4 percent from April, when it rose 0.1 percent. The latest AIER Inflationary Pressures Scorecard points to a rising inflationary climate for the months ahead. Out of 23 indicators tracked in the scorecard, 15 show rising inflationary pressure, six suggest falling pressure, and two indicate no change (Table 1).
Strong consumer demand coincided with weak production, putting upward pressure on inflation. Retail sales, a major indicator of consumer demand, advanced 12.6 percent on average in the latest three months (March through May), compared with an 8.4 percent drop in the previous three-month period (December through February). But industrial production slowed by an average of 0.8 percent in the recent three months. Higher demand and lower supply together can lead to higher prices. On the money and credit front, however, growth of the money supply and consumer credit both slowed, diminishing inflationary pressure.
In terms of costs and productivity, the Producer Price Index components of final demand all trended higher in May, meaning producers received higher prices for their output from wholesalers, which will possibly be passed on to consumers. Moreover, in the labor market, more jobs were created but business productivity trended down and labor costs trended up, both pointing to future price increases.
Consumer Price Index Analysis
The Consumer Price Index’s (CPI) seasonally adjusted advance of 0.4 percent in May from April (Table 2) was the fourth consecutive monthly increase. Compared with three months ago, the CPI posted a high increase of 3.2 percent, compared with a 2.2 percent increase in the three months ended in April and a 0.9 percent decline in the January through March period. Over the past 12 months, however, the CPI remained unchanged. This zero annual growth rate is far below the Fed’s 2 percent inflation target.
Food prices have stabilized. After trending higher for eight consecutive months since July 2014, food prices dropped 0.2 percent in March and stayed unchanged in April and May. Energy prices rebounded in May after a slight decline in April. A 4.3 percent jump in energy prices in May drove the month’s strong CPI growth. Compared with three months ago, energy prices climbed 17.9 percent.
Excluding volatile food and energy, the core CPI accounts for about 78 percent of the components reflected in the overall index. The core CPI rose 0.1 percent in May from last month and 1.7 percent from a year ago. That annual growth rate also trails the Fed’s 2 percent target.
Splitting the core CPI into core goods and core services gives a fuller picture of disparate trends within the index. Among all components tracked in Table 2, apparel was the only item that fell in May, dropping 0.5 percent after falling 0.3 percent in April. As a result, core goods, including apparel, new vehicles, and medical care commodities, trended down by 0.1 percent.
Core services, which cover 58.4 percent of all CPI components, rose 0.2 percent in May. On the year-over-year basis, core services climbed 2.4 percent, outgrowing both the overall CPI and the core CPI. Breaking down core services, transportation gained the most, followed by education. But over the 12 months through May, education costs grew at the fastest pace compared with other core services.
Everyday Price Index
Our AIER Everyday Price Index (EPI) increased 1.1 percent in May after showing no change in April. The EPI is not seasonally adjusted in order to show the prices that people are actually paying.
The goal of the EPI is to measure the prices of only a subset of goods and services, ones that people buy regularly. The CPI, on the other hand, measures overall price levels of all goods and services purchased by consumers.
Over the past 12 months, the EPI has decreased 2.7 percent while the CPI has not changed. The difference is due to a drop in energy prices; the EPI assigns a greater weight to energy.
EPI energy prices increased 5.2 percent in May, leading the index higher. After stabilizing in April, regular gasoline rose 10.7 percent and premium jumped 10 percent. Even though gasoline prices registered a large increase in May, over the past 12 months, gasoline prices have dropped 25 percent.
Food-away-from-home increased 0.2 percent and food-at-home decreased 0.1 percent, which left food prices unchanged in May because food-at-home has a higher weight. Food-at-home prices were led lower by meats, with poultry decreasing 1.7 percent. Fresh fruits and vegetables rose 1.0 percent, offsetting the decreases in meat prices.
https://aier.org/epi
Next/Previous Section:
1. Overview
2. Economy
3. Inflation
4. Policy
5. Investing
6. Pulling It All Together/Appendix