U.S. CPI Falls Again While Core Prices Remain Weak

Retail pricing power remained weak month despite some improvement in consumer purchases. The May Consumer Price Index fell 0.2% (+2.0% y/y) for the second consecutive monthly decline. Emphasizing the loss of pricing power, the May CPI was unchanged from the December '09 level. The May decline exceeded Consensus expectations for a 0.1% slip.

Lower energy prices continued to hold back overall inflation. They fell for the fourth consecutive month led by a 5.2% drop (+27.0% y/y) in gasoline prices. Fuel oil prices fell a lesser 2.0% (NSA, +21.1% y/y) and natural gas & electricity slipped 0.5% (+1.1% y/y).

Food & beverage prices were unchanged after two months of 0.2% increase. For the first five months of 2010 prices have risen at a 1.7% rate, roughly equal to last year's increase. A faster increase in fruit & vegetables (7.9%), meat, poultry & fish (7.1%) and dairy prices (3.7%) led the gain. Finally, the cost of eating out rose at just a 0.8% rate since December, near the record low. Alcoholic beverage prices declined.  

Core consumer prices remained weak. They matched expectations with a 0.1% increase after two months of being unchanged. So far this year core prices have risen at a record low 0.3% annual rate. Core goods prices continued weak, posting a 0.1% uptick following three months of decline. Apparel prices ticked up m/m but remained down 3.8% (AR) so far this year, while prices of home furnishings & operation fell at a 3.5% rate this year. New & used motor vehicles prices ticked 0.2% higher last month and they've risen at a 1.9% this year. Tobacco prices rose 1.3% last month, up at a 4.5% rate in 2010.

Core services prices rose a weakened 0.1% and they're up at a 0.6% rate this year. Weakness stems from shelter prices. They ticked 0.1% higher but they're down at a 1.1% rate this year. Owners equivalent rent of primary residences, a measure not equivalent to other house price measures, was unchanged last month but down at a 0.5% rate this year. Offsetting strength in services prices was provided last month by a 1.5% rise in public transportation costs and they're up at a 4.3% rate this year. Elsewhere in services, education costs rose 0.3% and at a 5.6% rate since December. Medical care services prices were unchanged but up at a 3.7% rate this year.

The chained CPI, which adjusts for shifts in consumption patterns, eased last month and rose 2.0% year-to-year. Chained prices less food & energy gained just 0.6%, a record low.

The consumer price data is available in Haver's USECON database while detailed figures can be found in the CPIDATA database.

Monetary Policy in a Low Inflation Economy with Learning from the Federal Reserve Bank of San Francisco can be found here.

Consumer Price Index (%)	May	April	March	May y/y	2009	2008	2007
Total	-0.2	-0.1	0.1	2.0	-0.3	3.8	2.9
Total less Food & Energy	0.1	0.0	0.0	1.0	1.7	2.3	2.3
Goods less Food & Energy	0.1	-0.3	-0.1	1.1	1.3	0.1	-0.4
Services less Energy	0.1	0.2	0.1	0.9	1.9	3.1	3.4
Energy	-2.9	-1.4	-0.0	14.0	-18.1	13.7	5.6
Food &Beverages	0.0	0.2	0.2	0.7	1.9	5.4	3.9
Chained CPI: Total (NSA)	0.1	0.2	0.4	2.0	-0.1	3.7	2.5
Total less Food & Energy	-0.0	0.0	0.2	0.6	1.5	2.0	1.9