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Economy in Brief

U.S. Consumer Price Index Acceleration Driven by Energy
by Tom Moeller June 13, 2008

The Bureau of Labor Statistics reported that the May consumer price index (CPI-U) rose 0.6%. The increase was the strongest since last November and it was slightly ahead of expectations for a 0.5% rise. Year-to-year, prices rose 4.1% but during the last three months the increase has been a faster 4.9%.

Energy prices surged 4.4% last month, the gain lifted by a 5.7% (20.8% y/y) seasonally adjusted jump in gasoline prices. (Not seasonally adjusted gasoline prices rose 9.5% m/m last month and are up another 6.4% so far in June.) Fuel oil prices more than doubled the April rise and increased 7.9% (50.7% y/y). Natural gas & electricity prices also were strong and rose 2.3% (8.8% y/y).

Food & beverage prices continued to rise and posted a 0.3% increase. The year-to-year increase was stable at a firm 5.0% which was the strongest since 1990, but the three-month rate of increase is an even firmer 5.9%. Prices for cereals & bakery products led last month's strength with a 1.6% (10.5% y/y) jump. Other food prices were under control. Prices for meats poultry & fish rose 0.1% (2.6% y/y) after a 0.9% April increase. Dairy product prices also cooled and fell 0.1% after the 1.2% spike during April. Prices still were up 11.0% y/y.

Less food & energy, consumer prices matched expectations and increased 0.2% during May after a 0.1% April uptick. During the last three months this inflation measure rose at a 1.8% annual rate, down from the 2.3% gain last year

Core goods prices fell 0.1% after having been unchanged in April. The three-month rate of decline of 0.9% was the weakest showing for core prices since May of last year. Prices for new & used motor vehicles fell 0.1% and declined at a 1.5% rate during the last three months. Apparel prices also were weak. They declined 0.3% and fell at a 4.3% annual rate during the last three months. Prices for household furnishings & operations rose just 0.2% but lately have shown some strength. They posted a 2.7% gain during the last three months versus a 0.1% decline during all of last year.

Core services prices firmed last month and posted 0.3% increase which was the largest rise since January. The strength was led by a 2.3% (10.2% y/y) surge in public transportation prices. Medical care services prices also rose a strong 0.5% (4.7% y/y). Still tame were shelter prices which rose 0.2% (2.6% y/y). Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, rose 0.1% (2.6% y/y) and rents rose 0.2% (3.5% y/y). Education costs rose another 0.4% and here prices rose at an accelerated 4.2% rate during the last three months following a 2.4% rise during 2007.

The chained CPI, which adjusts for shifts in consumption patterns, rose 0.6% which was near the April increase. Less food and beverages chained prices were unchanged.

Does stabilizing inflation contribute to stabilizing economic activity? is a speech by Fed Governor Frederic S. Mishkin and it can be found here.

Consumer Price Index (%) May April March May Y/Y  2007 2006 2005
Total  0.6 0.2 0.3 4.1 2.9 3.2 3.4
Total less Food & Energy 0.2 0.1 0.2 2.3 2.3 2.5 2.2
  Goods less Food & Energy -0.1 0.0 -0.1 0.1 -0.4 0.2 0.5
    Services less Energy 0.3 0.1 0.2 3.2 3.4 3.4 2.8
  Energy 4.4 -0.0 1.9 16.9 5.6 11.0 17.0
  Food & Beverages 0.3 0.9 0.2 5.0 4.0 2.3 2.5
Chained CPI: Total (NSA)  0.6 0.5 0.8 3.6 2.5 2.9 2.9
 Total less Food & Energy  0.0 0.1 0.5 2.0 2.0 2.2 1.9
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