US CPI (Y/Y) SA May: 8.6% (est 8.3%, prev 8.3%)

May CPI report shows a broad based acceleration in prices from April; very few positives to be found

• - US CPI (Y/Y) SA May: 8.6% (est 8.3%, prev 8.3%)
  - CPI (M/M) SA May: 1% (est 0.7%, prev 0.3%)
  - CPI Ex Food And Energy (Y/Y) May: 6% (est 5.9%, prev 6.2%)
  - CPI Ex Food And Energy (M/M) May: 0.6% (est 0.5%, prev 0.6%)

Consumer Price Index-April 2022 (bls.gov)

All numbers m/m unless otherwise indicated. Selected tables at the end.

After decelerating sharply in April (to +0.3% from +1.2% in March) m/m on the back of a decline in energy prices, headline inflation reaccelerated sharply in May, increasing by 1% as those energy prices reversed higher. That was above every analyst estimate. And in more bad news, the non-energy components, which were already very hot in April, stayed hot, with food increasing +1.2% after +0.9% in April and all other items (core) increasing by another +0.6% after increasing that amount in April as well.

Y/y headline CPI also reaccelerated from +8.3% to 8.6%, a forty-year high, although core did soften slightly to +6.0% from +6.2% in April, but still not far from March’s forty-year high of +6.5%.

Looking first at energy, which is 8% of CPI and was up +3.9% m/m after falling -2.7% in April, a big driver was gasoline prices, which are over 4% of total CPI and had fallen by -6.1% in April. Those reversed much of that in May increasing by 4.1%. Natural gas added another +8.0%, the largest monthly increase since October 2005, and the electricity index (2.5% of total CPI) also increased in May, rising 1.3 percent. Gasoline is now up 49% y/y and we know it is continuing to hit record highs as I write this so that looks like it will just keep moving higher. Electricity is up 12%, the most since August 2006. Overall energy is +34.6% y/y the most since 2005.

Food, which is 13% of CPI, as noted stayed very hot reaccelerating to a +1.2% m/m gain following +0.9% in April. It was the 18th consecutive month of increases. Overall, food index increased 10.1 percent for the 12-months ending May, the first increase of 10 percent or more since the period ending March 1981.

Food at home, which is 8% of total CPI, reaccelerated to 1.4% from +1.0%, the fifth consecutive month of at least a 1% rise. All six major grocery store food group indexes rose in May by at least 1% except fruits and vegetables (+0.6%). The index for dairy and related products rose 2.9 percent, its largest monthly increase since July 2007. The index for nonalcoholic beverages increased 1.7 percent, and the index for other food at home rose 1.6 percent. The cereals and bakery products index increased 1.5 percent in May after rising 1.1 percent in April. The index for meats, poultry, fish, and eggs rose 1.1 percent over the month, with the index for eggs rising 5.0 percent. The food at home index rose 11.9 percent over the last 12 months, the largest 12-month increase since the period ending April 1979. All six major grocery store food group indexes increased over the span, with five of the six rising more than 10 percent. The index for meats, poultry, fish, and eggs increased the most, rising 14.2 percent, with the index for eggs increasing 32.2 percent. The remaining groups saw increases ranging from 8.2 percent (fruits and vegetables) to 12.6 percent (other food at home).

Food away from home, which is 5% of total CPI, reaccelerated also +0.7% from +0.6% in April. The index for food away from home rose 7.4 percent over the last year, the largest 12-month change since the period ending November 1981, despite a fall of -31% in food at employee sites and schools.

Turning to goods, which are 21% of CPI, and which had been a relatively moderate +0.2% in April, also reaccelerated to +0.7% driven by vehicle sales (which total a big 8% of CPI). Used were up +1.8%, more than reversing Aprils decline, and new +1.0%. But all major goods categories were up at least a half percent other than medical care (+0.3%). The index for apparel increased 0.7 percent in May after falling in April. Overall goods were up 8.5% y/y. The index for new vehicles rose 12.6 percent and the index for used cars and trucks increased 16.1 percent over the year. Furniture, including bedding, was one of the few categories to post a monthly decline.

And by this point, I’m sure you won’t be surprised to learn that services, by far the largest component of CPI at 57%, remained hot at +0.6% (excluding energy services). In what is small comfort it decelerated a tenth from April’s +0.7%. But price increases were broad based here as well with just physicians’ services (-0.1%) declining in terms of the major categories. Shelter, which is nearly a third of the CPI and 40% of the core, accelerated to +0.6% from +0.5% in April. Rent of primary residence climbed 0.6% as did owners’ equivalent rent. Shelter is now up 5.5% y/y, the most since 1991, and we may have a little more to go before that peaks at these m/m rates. Regardless, due to the way it’s calculated, it will remain very “sticky” around these levels supporting CPI. Airfares rose 12.6% in May, a slight moderation from the prior month but still up the most on an annual basis since 1980. Services are up 5.2% y/y slightly below April’s advance.  Prices for hotel stays were up 22.2% year-over-year, and the index for airline fares rose 33.3 percent over the last year, the largest 12-month increase since the period ending December 1980.

In a separate report, Inflation-adjusted average hourly earnings fell 3% in May from a year earlier, the biggest drop since April 2021 and the 14th straight decline.

So, there was very little that wasn’t disappointing in the CPI report. The reacceleration was broad based, and most of the areas that are keeping CPI elevated (energy, food, shelter, etc.), don’t seem to be softening much if at all. From BBG:

The figures dash any hope that inflation had already peaked and was starting to ebb. Record gasoline prices, paired with unrelenting food and shelter costs, are adding strain to Americans’ cost of living, suggesting the Fed will have to pump the brakes on the economy even harder. That raises the risk of a recession, which some economists already saw as likely next year.

“There’s little respite from four-decade high inflation until energy and food costs simmer down and excess demand pressures abate in response to tighter monetary policy,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note. “The Fed might still raise policy rates ‘just’ 50 bps next week, but it could easily ratchet up the pace beyond then if inflation keeps surprising to the high side.”

“With the next CPI report likely tracking at about the same monthly pace, the chance for a new peak in year-over-year inflation is high. That will likely keep the Fed on a trajectory of 50-basis-point hikes beyond July, even though the economy is cooling.” -- Anna Wong and Andrew Husby, economists

There’s a lot more granularity in the report for those interested (linked at the top).

To subscribe to these summaries, click below.

To invite others to check it out:

To see more content, including summaries of most major U.S. economic reports and my morning and nightly updates go to Neil’s Newsletter Substack for newer posts or https://sethiassociates.blogspot.com for the full history.