Consumer Prices Spike in May
Consumer prices saw a significant increase in May, primarily driven by rising energy costs, pushing the country’s inflation rate to its highest in three years.
The Consumer Price Index (CPI) rose by 0.5% in May compared to April, as reported by the Labor Department. Year-over-year, prices have grown by 4.2%. This was largely in line with expectations.
Core prices, which exclude fluctuating food and energy costs, increased by 0.2% from the previous month, with a yearly rise of 2.9%. Interestingly, analysts had anticipated a monthly increase of 0.3% and an annual growth of 2.9% as well.
The Labor Department noted that the energy index surged by 3.9% in May, representing over 60% of the total monthly increase across all categories. Gasoline prices climbed by 7% last month, following a 5.4% rise in April and a staggering 21.2% in March. Year-over-year, gasoline prices are now up by 40.5%.
On a brighter note for grocery shoppers, food prices rose just 0.1%, a notable slowdown from April’s 0.7% increase. Over the year, food prices increased by 2.7%.
Additionally, core goods prices, excluding food and energy, actually dipped by 0.1% in May, after being flat in April and seeing a slight 0.1% rise in March. For the year, these core commodity prices have risen only 1.1%. New car prices declined by 0.3%, showing only a minimal 0.2% rise compared to last year, while used car prices went up by 0.1% but dropped by 2% over the past year.
Core service prices, excluding energy services, went up by 0.3%, marking a 3.4% increase year-on-year. The “super core” index, which includes everything except food, shelter, and energy, only rose by 0.1% in May but stayed steady at 2.4% year-over-year.
Inflation has been elevated since March, when the oil price shock first hit in the wake of the war with Iran. Initially, the hike was mostly seen in gasoline and energy sectors, but by April, inflationary pressures started affecting services. Still, the pace of inflation has eased slightly over the past two months, with increases of 0.9% in March, 0.6% in April, and 0.5% in May.
The drop in core commodity prices indicates that rising energy costs aren’t translating into higher prices at stores. There seems to be a slowdown in services inflation as well.
The Federal Reserve aims for a 2% annual inflation rate but relies on the Personal Consumption Expenditure Price Index, gathered by the Commerce Department, as its preferred inflation measure. Recently, the PCE inflation rate has slightly outpaced the more commonly referenced CPI.
Public dissatisfaction with rising prices is becoming more pronounced. Consumer surveys show a decline in optimism and satisfaction, with the University of Michigan’s Consumer Sentiment Index hitting a record low last month.
A recent YouGov poll reveals that 68% of Americans disapprove of President Trump’s approach to inflation. Moreover, 52% of respondents indicated that the prices they face for goods have risen “significantly” in the last year. While the job market has improved, adding an average of 188,000 jobs in recent months, 48% of Americans regard inflation as a more pressing issue than employment, with 41% believing both issues are equally important. Only 4% view job availability as more critical than inflation. Notably, 34% consider inflation the most significant challenge facing the nation, far surpassing concerns over jobs and the economy (11%), crime (3%), immigration (7%), and healthcare (9%).
