Inflation rose for the first time in four months in May. According to the Bureau of Labor Statistics, the headline figure for the Consumer Price Index was at 2.4% year-over-year, up from 2.3% in April but lower than the expected 2.5% growth. Additionally, core CPI remained at a four-year low at 2.8% year-over-year, lower than the expected 2.9% growth. On a monthly basis, headline and core prices rose 0.1%, lower than expected for each series (0.2% headline, 0.3% core).
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 0.1 percent on a seasonally adjusted basis in May, after rising 0.2 percent in April, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.4 percent before seasonal adjustment.
The index for shelter rose 0.3 percent in May and was the primary factor in the all items monthly increase. The food index increased 0.3 percent as both of its major components, the index for food at home and the index for food away from home also rose 0.3 percent in May. In contrast, the energy index declined 1.0 percent in May as the gasoline index fell over the month.
The index for all items less food and energy rose 0.1 percent in May, following a 0.2-percent increase in April. Indexes that increased over the month include medical care, motor vehicle insurance, household furnishings and operations, personal care, and education. The indexes for airline fares, used cars and trucks, new vehicles, and apparel were among the major indexes that decreased in May.
The all items index rose 2.4 percent for the 12 months ending May, after rising 2.3 percent over the 12 months ending April. The all items less food and energy index rose 2.8 percent over the last 12 months. The energy index decreased 3.5 percent for the 12 months ending May. The food index increased 2.9 percent over the last year.
The first chart is an overlay of headline CPI and core CPI (excludes Food and Energy) since the turn of the century. The highlighted two percent level is the Federal Reserve's target inflation rate. In May, prices accelerated from 2.31% in April to 2.35%. Meanwhile core prices were practically unchanged, inching up from 2.78% in April to 2.79% in May.
The next chart shows both series since 1957, the year the government first began tracking core inflation. In recent years, we have seen some of the highest inflation rates since the second of the two recessions in the early 1980s. However, inflation has slowly made its way back down but has proven sticky. Core CPI is currently sitting at a level last seen in the early 1990s, while headline CPI is near levels seen in the 2017-18.
Consumer Price Index Components
Here is a table showing the annualized change in Headline and Core CPI, not seasonally adjusted, for each of the past six months. Also included are the eight components of Headline CPI and a separate entry for Energy, which is a collection of sub-indexes in Housing and Transportation. We can make some inferences about how inflation is impacting our personal expenses depending on our relative exposure to the individual components. Some of us have higher transportation costs, others medical costs, etc.
A conspicuous feature in the year-over-year table is the volatility in energy, significantly a result of gasoline prices, which is also reflected in Transportation.
Here is the same table as above with month-over-month numbers (not seasonally adjusted).
Note: For additional information on the component composition of the Consumer Price Index, see our Inside the Consumer Price Index.
Inflation: Fed's Target
In the wake of the Great Recession, 2% has been the Fed's target for core inflation. Although, the Fed traditionally uses the Personal Consumption Expenditure (PCE) price index as their preferred inflation gauge. In August 2020, Fed Chairman Jerome Powell introduced a policy that not only allows for a level above 2% but welcomes it.
"In order to anchor longer-term inflation expectations at this level, the Committee seeks to achieve inflation that averages 2 percent over time, and therefore judges that, following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time." See Statement on Longer-Run Goals and Monetary Policy Strategy update (revised January 2021).
The COVID-19 pandemic helped launch inflation into its highest levels since the 1980s. As a result, the Fed has been battling high inflation over the past few years with its monetary policy. Inflation has eased off of its 2022 highs, however the back half of 2024 has shown just how sticky it can be.
