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Consumer Price Index: Virtually Unchanged

July 15, 2016

by Doug Short

The Bureau of Labor Statistics released the May CPI data this morning. The year-over-year nonseasonally adjusted Headline CPI came in at 1.01%, essentially unchanged from 1.02% the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 2.26%, also essentially unchanged from the previous month's 2.24%, although rounded to a decimal it's slight increase from 2.2% to 2.3%.

Here is the introduction from the BLS summary, which leads with the seasonally adjusted monthly data:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in June on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 1.0 percent before seasonal adjustment.

For the second consecutive month, increases in the indexes for energy and all items less food and energy more than offset a decline in the food index to result in the seasonally adjusted all items increase. The food index fell 0.1 percent, with the food at home index declining 0.3 percent. The energy index rose 1.3 percent, due mainly to a 3.3-percent increase in the gasoline index; the indexes for natural gas and electricity declined.

The index for all items less food and energy increased 0.2 percent in June. The shelter index rose 0.3 percent, and a broad array of indexes also increased, including medical care, education, airline fares, motor vehicle insurance, and recreation. In contrast, the indexes for used cars and trucks, apparel, communication, and household furnishings and operations all declined in June. [More…] was looking for a 0.3% increase MoM in seasonally adjusted Headline CPI and 0.2% in Core CPI. Year-over-year forecasts were 1.1% for Headline and 2.3% for Core.

The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since the turn of the century. The highlighted two percent level is the Federal Reserve's Core inflation target for the CPI's cousin index, the BEA's Personal Consumptions Expenditures (PCE) price index.

Headline and Core CPI since 2000

The next chart shows both series since 1957, which was the first time the government began tracking Core Inflation.

Headline and Core CPI

In the wake of the Great Recession, two percent has been the Fed's target for core inflation. However, at their December 2012 FOMC meeting, the inflation ceiling was raised to 2.5% while their accommodative measures (low Fed Funds Rate and quantitative easing) were in place. They have since reverted to the two percent target in their various FOMC documents.

Federal Reserve policy, which in recent history has focused on core inflation measured by the core PCE Price Index, will see that the more familiar core CPI is above the PCE target range of 2 percent.