Consumer Price Index Up Again in May, but Energy Prices No Longer Rising

The Consumer Price Index (CPI) was up again in May, but unlike the previous ten months, the increase was not driven by energy prices. The Bureau of Labor Statistics (BLS) reported a 0.2% (SA) increase in the CPI for All Urban Consumers in May—marking the eleventh consecutive increase in overall price levels. On a year-over-year basis, the all-items index is up 3.6% (NSA).

Food prices continued their steady rise, up another 0.4% in May, with strong growth in the index for subcategories such as meats, poultry and fish (+1.5%) and cereals and bakery products (+1.0%). These gains more than offset a decline in the index for fruits and vegetables (-1.3%). Overall, the food index has trended steadily higher since the beginning of the year, rising at a rate of 0.4% or more each month and contributing to an overall increase of 3.5% from May 2010.

Core CPI, which excludes the volatile food and energy prices, rose 0.3% in April, bolstered largely by increases in the clothing (+1.2%) and new vehicles (+1.0%) indexes.  Although core CPI has trended up for 16 consecutive months, it still remains suggestive of modest levels of inflation, with a moderate 1.5% increase over May 2010.

The shelter index, housing’s component of the CPI, rose a modest 0.2% in May, after increasing at a rate of 0.1% over the previous 7 months. The index for lodging away from home accounts for the most of last month’s increase, up 2.9% between April and May. Owners’ equivalent rent and rent of primary residence maintained their steady pace of 0.1% for the past 7 months.  Compared to May 2010 both of these subcomponents have experienced modest gains, up 0.9% and 1.4%, respectively.

Perhaps the best news in this month’s CPI report was an end to the upward march in energy prices. The CPI for energy fell 1.0% in May, ending ten months of very strong growth that yielded a 21.5% year-over-year gain. Gasoline prices, which had been driving this strong growth, fell 2.0% in May.  However, price levels at the pump remain 36.2% above their year-ago level, averaging $3.71 per gallon nationally (Department of Energy). To put recent changes in gasoline prices into perspective, during the first week of May 2011, prices at the pump averaged just under $4.00 per gallon. , As recently as December 2010, pump prices were less than $3.00 per gallon and $2.70 per gallon in September 2010. The Department of Energy expects gasoline prices to shift down, but remain above $3.50 per gallon over the remainder of the year, before climbing again in early 2012. Although gasoline prices will remain at a high level, the moderate decline should help to stabilize the CPI over the remainder of 2011.



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