ARLINGTON, Va.—With talk of “inflation” being increasingly discussed, new data show on a seasonally-adjusted basis, overall consumer prices rose 0.6% in May, with the Bureau of Labor Statistics reporting the overall consumer price index (CPI) grew 4.9% over the 12-month period.
"Year-over-year measures are distorted by base effects, but the price index has grown by 2% over the past three months, which is the fastest pace since 2005," said NAFCU Chief Economist and Vice President of Research Curt Long. "About half of the advance in May was due to a handful of categories--used vehicles, hotels, airfare, and car rentals--which make up just 6% of the average consumption basket. For those who see the recent spike in prices as transitory, this is the main reason. Used car prices are simply not going to grow over 7% per month indefinitely. If the price growth in those categories subside, it is easy to imagine the overall index returning to a more comfortable trend."
Energy prices were stable at 0.1% during the month, following a 0.1% decline in April. But from a year ago, energy prices were up a whopping 27.8%. Additionally, food prices rose 0.4% in May and are up 2.2% compared to this time last year.
Fuel to Fire?
Core prices (excluding food and energy costs) rose 0.7% compared to April. Year-over-year core CPI growth was 3.8%.
"But among more hawkish observers, an extended period of inflation overshoot could unmoor expectations, and rising wage growth may add more fuel to the fire," concluded Long. "With job gains slower than anticipated, the Fed is unlikely to raise rates any time soon. But a tapering of asset purchases is a possibility in the near term.”