Inflation Hits a Fresh 40-Year High in May

Consumer prices accelerated again in May as shelter, energy and food prices continued to surge at the fastest pace in decades. This marked the third straight month for inflation above an 8% rate and was the largest year-over-year gain since December 1981. Both energy and shelter index recorded their largest annual gains since September 2005 and February 1991. This persistent inflation is likely to push the Federal Reserve to continue tightening monetary policy and raise rates at an accelerated pace.

The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 1.0% in May on a seasonally adjusted basis, following an increase of 0.3% in April. Excluding the volatile food and energy components, the “core” CPI increased by 0.6% in May, the same increase as in April.

In May, the indexes for gasoline, shelter, and food were the largest contributors to the increase in the headline CPI. After declining 2.7% in April, the energy index rose by 3.9% in May with the gasoline and natural gas index rising 4.1% and 8.0%, the largest monthly increase in natural gas index since October 2005. Meanwhile, the food index rose by 1.2% as the food at home index rose 1.4 percent.

Other major component indexes also continued to rise in May. The indexes for shelter (+0.6%), airline fares (+12.6%), used cars and trucks (1.8%) and new vehicles (1.0%) showed sizeable monthly increases in May. The increase in shelter index was the largest monthly increase since March 2004.

The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.6% in May. The indexes for owners’ equivalent rent (OER) and rent of primary residence (RPR) both increased by 0.6% over the month. Monthly increases in OER have averaged 0.5% over the last three months. More cost increases are coming from this category, which will add to inflationary forces in the months ahead.

During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 8.6% in May, following an 8.3% increase in April. The “core” CPI increased by 6.0% over the past twelve months, following a 6.2% increase in April. The food index rose by 10.1%, the first increase of 10 percent or more since March 1981, and the energy index climbed by 34.6% over the past twelve months.

NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster (slower) than overall inflation, the real rent index rises (declines). The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components).

The Real Rent Index remained unchanged in May. Over the first five months of 2022, the monthly change of the Real Rent Index stayed virtually unchanged, on average.

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