CPI Report: Despite the ongoing two-year inflation run-up, American consumers are finding some relief in two major areas: the cost of gasoline and groceries. However, other expenses, particularly rent, continue to rise.
In May, inflation slowed for the 11th consecutive month, with grocery price increases easing once again, and gas prices reversing the previous month’s rise. The Consumer Price Index (CPI) reported that consumer prices increased by 4% compared to the previous year. This figure represents a decline from April’s 4.9% and a significant drop from the 40-year high of 9.1% observed in June of last year. May’s increase of 0.1% on a monthly basis follows a 0.4% rise in April.
What distinguishes the core CPI from the CPI?
Bernard Baumohl, the chief global economist for the Economic Outlook Group, states that the threat of inflation appears to be diminishing, as prices continue to stabilize.
It is important to differentiate between two measures of inflation: the CPI and the core CPI. The CPI reflects the overall change in prices for a basket of goods and services, including food and energy. On the other hand, the core CPI excludes the more volatile food and energy items to provide a clearer indication of long-term trends. Core prices have proven more difficult to control, consistently rising by 0.4% for three consecutive months. However, this has resulted in a decrease in the annual increase from 5.5% to 5.3%, the lowest since November 2021.
How long will the Fed maintain its rate increases?
The latest report presents a dilemma for the Federal Reserve, which is expected to halt its 14-month campaign of aggressive interest rate hikes to evaluate the impact on the economy. While overall price increases have moderated, the Fed remains concerned about persistently high core inflation.
As a result, some Fed officials are considering skipping a rate increase this week but potentially implementing one in July. Economist Jason Schenker of Prestige Economics suggests that the substantial slowdown in price increases in May will likely prompt the Fed to hold off on further rate hikes for the rest of the year. However, Paul Ashworth of Capital Economics, taking into account the persistent core price gains, expects another rate hike in July.
stock exchanges
After the inflation report solidified Wall Street’s predictions that the Fed would delay raising interest rates this week, stocks closed the day higher on Tuesday.
The S&P 500 reached heights it hasn’t seen since April 2022 with a 0.7% gain at the closing. The Nasdaq composite increased by 0.8% while the Dow Jones Industrial Average finished the day 0.4% ahead.
In anticipation of the economy avoiding a serious recession and inflation decreasing enough for the Fed to ease off on rate rises, the U.S. stock market has been soaring.
What are the forecasted changes in the price of petrol?
Petrol prices decreased 5.6% in May and are now nearly 20% lower than they were a year ago. Despite ongoing economic predictions that have slowed down both global oil demand and pricing, pump prices have been turbulent but have stayed relatively low. Regular unleaded petrol had a national average price of $3.59 per gallon on Monday, up from $3.54 a month earlier but below its top of $5 in June 2022.
Will the cost of food decrease in 2023?
After two straight reductions in grocery prices, there was a little 0.1% gain, bringing the annual increase down from 7.1% to 5.8%. Due to a slowing in global demand, commodities like wheat and maize have seen a decrease in price recently.
After a spate of abrupt hikes brought on by the avian flu, the price of eggs fell by a stunning 13.8% in May, marking the fourth consecutive month of declines. As a result, prices have decreased by 0.4% over the last year. Prices for fish and shellfish decreased by 0.9%, bacon prices dropped by 1.3%, and fresh muffins, buns, and biscuits decreased by 1.1%.
However, some costs started to rise. Prices for bread increased 0.4% and are up 12.5% yearly. Chicken’s increase was 0.3%, while ground beef was up 2%.
In the past year, restaurant costs have climbed by 8.3%, or a 0.5% increase.
If so, by what much in 2023?
Despite the fact that the growth in rent has moderated considerably, it was once again the main cause of inflation. For the third consecutive month, rent increased by 0.5%, a decline following a streak of higher advances. Rent increased by 8.7% annually, a little decrease from the previous month. Based on new contracts, economists anticipate a significant reduction in rent hikes; nevertheless, this change has been reluctant to spread to current leases.
For the second consecutive month, used automobile prices increased 4.4% as a wave of wholesale cost hikes finally made their way into retail pricing, but they are still down 4.2% a year. After a pandemic-related run-up that raised expenses by nearly a third, prices have been falling. The cost of new cars decreased by 0.1%.
And for the third consecutive month, clothing costs rose by 0.3%.
As COVID-related supply-chain snags continued to be resolved, some favorable pricing started to decline. Prices for new cars decreased by 0.1%. Appliance prices fell 0.3%, while furniture and bedding expenses fell 0.5%.
Despite Americans returning to travel and other activities from before COVID, certain services got somewhat less expensive. Hotel prices decreased 1.8%, and airfares dropped by 3.0%. Services related to health care decreased by 0.1% and have been falling for some time.
Why does CPI matter?
In determining interest rates, the Federal Reserve bases its choices on fulfilling its dual objectives of price stability and maximum employment. Even though its stated inflation target is PCE around 2%, the Fed uses the CPI as one indicator of whether prices are “stable.”
The Cleveland Fed stated that the CPI “probably gets more press” since it is used to modify social security benefits and serves as the benchmark for some financial contracts.
On Wednesday, June 14, the Fed’s next policy gathering comes to a finish. The Fed will make its interest rate decision that afternoon and publish a summary of its economic forecasts for inflation, employment, interest rates, and future economic growth. The majority of experts predict that the Fed will hold rates constant on Wednesday but at least one more rate hike is expected in 2018.
How much does US inflation vary by month?
The inflation rate has decreased, having dropped from a peak of 9.1% in June of last year by more than half. Here is a breakdown of American inflation since May 2022, broken down by month:
- May 2022: 8.6%
- June 2022: 9.1%
- July 2022: 8.5%
- Aug 2022: 8.3%
- Sept 2022: 8.2%
- Oct 2022: 7.7%
- Nov 2022: 7.1%
- Dec 2022: 6.5%
- Jan 2023: 6.4%
- Feb 2023: 6.0%
- Mar 2023: 5.0&
- Apr 2023: 4.9%
- May 2023: 4.0%
Is the CPI the only measure of inflation taken into account by the Federal Reserve?
No. The Personal Consumption Expenditures Price Index (PCE) from the Bureau of Economic Analysis is really the Fed’s favorite inflation indicator. PCE is divided into headline and core categories as well, but it evaluates a different basket of goods and services and includes a larger sample of respondents.
PCE measures price increases for all direct and indirect consumer spending, as opposed to only the actual out-of-pocket costs incurred by urban families, as is the case with CPI. For instance, the CPI would only account for the out-of-pocket medical expenditures that urban families incur, whereas PCE takes into account the costs associated with employer-sponsored insurance, Medicare, and Medicaid.
PCE also takes substitutes into consideration. The Cleveland Fed explained, “Therefore, if the price of bread increases, people buy less bread, and the PCE uses a new basket of goods that accounts for people buying less bread.” “The CPI still uses the same basket as before.”
In general, CPI runs hotter than PCE.
How did PCE do in April?
PCE prices increased 0.4% from March to April as opposed to 0.1% in March. In April, prices rose 4.4% year over year, up from 4.2% in March. The yearly increase is far lower than a record of 7% reached in last June, but it is still well above the Fed’s objective of 2%.
Similar to the previous month, Core PCE increased 0.4% from March to April and 4.7% from the previous year. The core PCE has barely moved year over year since it first reached 4.6% in December.
How are the Dow futures performing prior to the CPI report?
Early on Tuesday morning, the S&P 500 index futures were up 0.09% at 4,346.50, the blue-chip Dow futures were down 0.02% at 34,077, and the tech-heavy Nasdaq-100 futures were up 0.3% at 14,843.25.
What are core CPI and CPI as a whole?
The Bureau of Labour Statistics creates the CPI, or consumer price index, as an indicator of inflation each month. It calculates the average change in price over time for a market basket of consumer goods and services purchased by urban consumers.