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Consumer Price Index: A Small Rise in May Core Inflation

June 16, 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 1.02%, down slightly from 1.13% the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 2.24%, up from the previous month's 2.15%.

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 May 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.

The food index declined in May, but the indexes for energy and all items less food and energy rose, resulting in the seasonally adjusted all items increase. The food index fell 0.2 percent, as all six major grocery store food group indexes declined. The energy index increased 1.2 percent as the gasoline index rose 2.3 percent and the indexes for fuel oil and natural gas also advanced.

The index for all items less food and energy increased 0.2 percent in May. The shelter index rose 0.4 percent, and the indexes for medical care, apparel, motor vehicle insurance, and education were among indexes that also increased. These advances more than offset declines in an array of indexes including used cars and trucks, communications, household furnishings and operations, airline fares, and new vehicles.

The all items index rose 1.0 percent for the 12 months ending May, compared to a 1.1-percent increase for the 12 months ending April. The index for all items less food and energy rose 2.2 percent over the last 12 months. The food index has risen 0.7 percent over the last year, with the index for food at home declining 0.7 percent and the index for food away from home rising 2.6 percent. The energy index has declined 10.1 percent over the past 12 months, with all major components falling over the span. [More…]

Investing.com 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 2.2% 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.