The BLS’s announcement of the May CPI showed little change in the inflation rate. On a year-over-year basis, the CPI inflation rate ticked up from 2.33% in April to 2.38% in May. However, the annualized monthly inflation rate fell from 2.68% to 0.97%. Our measure of trend CPI inflation fell from 2.37% to 1.91%.
The situation was largely similar with regards to core CPI (excluding food and energy) inflation. The year-over-year measure barely changed, from 2.78% to 2.77%; the montly rate fell from 2.88% to 1.57%; and our trend measure dropped from 2.66% to 2.30%.
Fed watchers know that the FOMC focuses on core PCE inflation, not CPI inflation. That said, there’s considerable overlap in these two price level measures, and in general the two measures of inflation move together. Based on the CPI report, it seems unlikely that core PCE inflation will rise markedly. That inflation remains somewhat subdued and the real economy has not shown any real signs of slipping, it appears unlikely that the Fed will make any interest rate movements soon.
