CPI, PPI, Fed Rates, and More!
Editor’s Note: Happy Friday!
It’s been a data-rich week, and I’m looking forward to spending the weekend not thinking about numbers.
Let’s get to it!
BLS: May CPI Remained Flat from April
According to the U.S. Bureau of Labor Statistics’ Consumer Price Index (CPI) reading for May — released this week — prices held still last month.
The CPI, which measures the prices that U.S. consumers pay for a basket of goods and services, remained flat from April but was still 3.3% higher than it was in May 2023.
According to Dow Jones, economists had been expecting a 0.1% monthly gain and 3.4% growth on a year-over-year basis.
Stripping out those pesky volatile food and energy prices, the so-called core CPI showed a 0.2% rise for the month and a 3.4% gain from a year ago. Economists had been expecting a 0.3% increase and a 3.5% boost to the core CPI.
The biggest — or “stickiest” — gains were recorded in costs for shelter. Shelter costs include rent and homeowner’s equivalent rent, which is what homeowners would pay if they were to rent their homes. Shelter costs account for roughly one-fourth of the CPI’s weighting.
Shelter costs grew by 0.4% from April to May and 5.4% on a year-over-year basis.
However, the CPI’s energy index recorded a 2% decrease. That included a 3.6% drop in the price of gasoline at the pump.
In addition, the cost of vehicle insurance dropped by 0.1% for the month — although it is still more than 20% higher on a year-over-year basis.
Food prices rose by just 0.1% — a lower increase than expected.
Why There Will Likely Be Only One Rate Cut in 2024
During his customary post-meeting press conference on Wednesday, Federal Reserve Chair Powell noted that the Bureau of Labor Statistics’ Consumer Price Index (CPI) reading for May was “certainly a better inflation report than almost anybody expected.”
However, he said that he and other Fed officials are still waiting to see more evidence of inflation slowing down before cutting the central bank’s benchmark interest rates.
According to Powell, they’re specifically looking for evidence that inflation is cooling to the point that it won’t get warm again anytime soon.
And apparently, that involves cooling down the labor market, which Powell noted has shown improvement.
“Overall, a broad set of indicators suggest that conditions in the labor market have returned to about where they stood on the eve of the pandemic, relatively tight but not overheated,” Powell said.
“We see gradual cooling, gradual moving toward a better balance. We’re monitoring [the labor market] carefully for signs of something more than that, but we really don’t see that.”
According to the CME Group’s FedWatch tool, the futures market is now expecting the Federal Reserve to initiate its first rate cut of the current cycle in September.
“The belief that components boosting inflation in the first quarter were not indicative of current cost pressures needed to be validated. May’s report provides strong evidence on that front,” Moody’s Analytics economist Matt Colyar wrote in a note this week. “The Fed is banking it can
The PPI Unexpectedly Dropped in May
Meanwhile, yesterday there was more evidence that inflation is cooling off.
The Bureau of Labor Statistics’ Produce Price Index (PPI) — which measures the prices that producers charge for their goods and services at a wholesale level — showed an unexpected decline.
The PPI can be helpful in charting the future path of inflation because it gauges prices upstream of the consumer level. Theoretically, consumer-facing companies buy the goods and services wholesale and then pass the savings — or the higher costs — on to consumers.
Anyway, the PPI reading for May showed a 0.2% drop. That’s an improvement from the 0.5% increase noted in April. Economists had been expecting the PPI to show a 0.1% uptick.
However, on a year-over-year basis, the PPI still rose, by 2.2%.
The biggest decline in the PPI was in the final demand goods prices category, which dropped by 0.8%. That’s the biggest dropoff noted in this category since last October.
Breaking the category down further, energy prices dropped by 4.8%, while food prices took a 0.1% tumble.
Have Wages Kept Up With Inflation?
Of course, inflation is particularly damaging when wage growth doesn’t keep pace.
During our current bout with inflation, have wages kept up?
Data from the U.S. Bureau of Labor Statistics indicates that they have — but just barely.
From April 2021 to April 2023, average real hourly earnings dropped on a year-over-year basis for 25 consecutive months. Wages finally began to rise in May 2023.
Since January 2020, nominal wages have risen by 22.7%. However, at the same time, consumer prices have risen by an aggregated 21%.
This equates to real wage growth of just 1.5% for the last four and a half years. That’s like getting a pay increase of just 0.3% in that time.
Take a look:
You will find more infographics at Statista
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