May 2017 CPI: Year-Over-Year Inflation Rate Again Moderates

by Jill Mislinski and Steven Hansen

According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 1.9 % – moderating from than last month’s 2.2 %. The year-over-year core inflation (excludes energy and food) rate moderated 0.2 % to 1.7 %, and is below the target set by the Federal Reserve.

Analyst Opinion of the Consumer Price Index

Many elements of the CPI moderated this month lead by the energy sector. Headline and core inflation is now below 2 % year-over-year

The market expected (from Bloomberg / Econoday):

  Consensus Range Consensus Actual CPI-U – month-over-month (MoM) -0.1 % to 0.1 % +0.0 % -0.1 % CPI-U year-over-year (YoY) 1.9 % to 2.1 % +2.0 % +1.9 % CPI less food & energy (MoM) 0.1 % to 0.3 % +0.2 % +0.1 % CPI less food & energy (YoY) 1.8 % to 2.0 % +1.9% +1.7 %

z cpi1.png

As a generalization – inflation accelerates as the economy heats up, while inflation rate falling could be an indicator that the economy is cooling. However, inflation does not correlate well to the economy – and cannot be used as a economic indicator.

The major influence on the CPI was again energy prices.

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 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 1.9 percent.

A decrease in the energy index was the main contributor to the monthly decrease in the all items index. The energy index fell 2.7 percent, led by a decline of 6.4 percent in the gasoline index. The food index rose 0.2 percent, due to increases in four of the six major grocery store food group indexes.

The index for all items less food and energy rose 0.1 percent in May, as it did in April. The shelter index increased 0.2 percent over the month. However, many indexes declined in May, including those for apparel, airline fares, communication, and medical care services.

The all items index rose 1.9 percent for the 12 months ending May, a smaller increase than the 2.2- percent rise for the 12 months ending April. This month’s increase is still a larger rise than the 1.6- percent average annual increase over the past 10 years. The index for all items less food and energy rose 1.7 percent over the previous 12 months; this compares to a 1.8-percent average annual increase over the past decade. The energy index rose 5.4 percent over the last year, while the food index increased 0.9 percent.