Sharp Decline in Energy Prices Pushes CPI Lower


Today’s release for the Consumer Price Index for All Urban Consumers (CPI-U) showed a 0.3% decline between April and May 2012. The energy index accounted for most of the drag on topline CPI last month, falling an additional 4.3% after a 1.7% drop in April. The latest decline represented the largest percentage contraction in the energy index since December 2008—a time period in which energy prices were falling sharply in response to the deepening recession. Gasoline prices contributed significantly to the decline in the broader energy index, averaging $3.79 over the course of May, a 4.2% decline from April. Prices fell throughout the month of May and have trended lower through the first two weeks in June ($3.63 nationally as of 6/11), which points to additional downward pressure on the energy index and overall CPI.

Core CPI, which excludes the often-volatile food and energy goods, increased 0.2 percent month-to-month in May, roughly the same rate of growth it has averaged since the beginning of 2011. On a year-over-year basis, core CPI advanced 2.3% for the fourth time in the last five months. The shelter index, which serves as a proxy measure of overall housing costs, maintained its slow and steady march higher by increasing 0.2% on a month-to-month basis for the 11th time in 12 months. For rental housing, NAHB separately constructs a measure of real rental rates from the CPI for rent of primary residences and overall CPI. On an annualized basis, the real rent index jumped 6 percent in May, based on a trend-like increase in rents coupled with the sharp (annualized) decline in overall inflation. In addition, this marked the largest percentage jump in this metric since late 2008.

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