Americans struggling with a two-year inflation run-up continue to get some relief from two of the biggest drivers — at the gas pump and in grocery stores.
Other costs, especially rent, are still climbing.
Inflation slowed for an 11th straight month in May as grocery price increase eased again and gas more than reversed the previous month’s rise.
Overall, consumer prices increased 4% from a year earlier, down from 4.9% in April and a 40-year high of 9.1% last June, according to the Labor Department’s consumer price index. That’s the smallest yearly increase since March 2021. On a monthly basis, prices rose 0.1% following a 0.4% increase in April.
What is the difference between core CPI and CPI?
Core prices, which exclude volatile food and energy items and better capture longer-term trends, have been tougher to tame. They rose 0.4% for the third straight month. Still, that lowered the annual increase from 5.5% to 5.3%, lowest since November 2021.
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How long will the Fed keep raising rates?
The report presents a quandary for a Federal Reserve that’s expected Wednesday to pause its 14-month campaign of aggressive interest rate hikes aimed at corralling inflation to assess their economic impact. While price increases broadly have eased, the Fed is more concerned about stubbornly elevated core inflation.
Another reason Fed officials indicated they’ll probably hold rates steady this week is to gauge the effects of financial stress triggered by the recent collapse of three regional banks hit with deposit runs. But so far the impact of the crisis on the economy has been limited, Goldman Sachs says.
As a result, some Fed officials have said they were leaning toward skipping a rate increase this week but hiking again in July.
What is the outlook for the price of gasoline?
Gas prices fell 5.6% in May are down nearly 20% from a year ago. Pump prices have been choppy but remained relatively low amid lingering recession fears that have held down global oil demand and prices. Nationally, regular unleaded gasoline averaged $3.59 a gallon Monday, up from $3.54 a month ago but down from a peak of $5 in June 2022.
Why is CPI important?
The Federal Reserve makes interest rate decisions based on achieving its dual mandate of price stability and maximum employment. The Fed looks at CPI as one measure to gauge if prices are “stable” even though its stated inflation goal is PCE around 2%.
“CPI probably gets more press, in that it is used to adjust social security payments and is also the reference rate for some financial contracts,” the Cleveland Fed said.
The Fed’s next policy meeting ends on Wednesday, June 14. That afternoon, the Fed will announce its interest rate decision and issue a summary of economic projections of what it expects inflation, employment, interest rates, and economic growth to be in coming years. Most economists expect the Fed to keep rates steady Wednesday but project at least one more rate increase this year.
Is inflation going down?
Farrokh Langdana, director of the executive MBA program at Rutgers Business School said that inflation peaked at over 9% last June and has since fallen to about 5%, though he acknowledged that’s higher than the Federal Reserve’s 2-3% inflation target.
Is CPI the only measure of inflation the Federal Reserve considers?
No. Actually, the Fed’s preferred inflation gauge is the Personal Consumption Expenditures price index (PCE) from the Bureau of Economic Analysis. PCE also is broken into headline and core but measures a different basket of goods and services and includes a wider group of people surveyed.
PCE measures price changes for all direct and indirect consumer consumption, not just literally what urban households are paying out of pocket like in CPI. For example, CPI would only capture what urban households pay out of pocket for medical expenses, but PCE includes costs covered by employer-provided insurance, Medicare, and Medicaid.
Also, PCE accounts for substitutions. “Thus, if the price of bread goes up, people buy less bread, and the PCE uses a new basket of goods that accounts for people buying less bread,” the Cleveland Fed said. “The CPI uses the same basket as before.”
CPI tends to run hotter than PCE.
What was PCE in April?
PCE prices rose 0.4% from March to April, compared with up 0.1% the previous month. Measured year over year, prices increased 4.4% in April, up from 4.2% in March. The year-over-year figure is down sharply from a 7% peak last June but far above the Fed’s 2% target.
Core PCE rose 0.4% from March to April, the same as in the previous month, and 4.7% from 12 months earlier. Year-over-year, the core PCE has changed little since it first touched 4.6% in December.
How Dow futures are trading before the CPI report?
Futures tied to the broad stock market gauge, the S&P 500 index, were up 0.09% at 4,346.50 early Tuesday morning, while futures connected to the blue-chip Dow were down 0.02% at 34,077 and the tech-laden Nasdaq-100 traded up 0.3% at 14,843.25.
What is CPI and what is core CPI?
CPI, short for the consumer price index, is an inflation gauge prepared by the Bureau of Labor Statistics each month. It measures the average change over time of what urban consumers pay for a market basket of consumer goods and services.
There are two main parts to CPI:
- Headline, or overall, CPI
- Core CPI, which excludes the volatile energy and food sectors
“Over the short term, the core measure may give a more accurate reading of where inflation is headed, but people do buy food, fill up their gas tanks, and heat their homes, so headline inflation more accurately represents people’s actual expenses,” according to the Cleveland Federal Reserve.
