Consumer Price Index:Historical Releases/2023 May

Return to: Consumer Price Index | Historical Releases

Full Report:https://www.bls.gov/news.release/cpi.nr0.htm

Publishing date: June 13 2023

Assessment by Magaly

May CPI numbers saw a big jump down from 4.9% to 4%, and disinflation is expected to continue in June, with estimates already in the low 3%, but is still early in my opinion to consider that inflation will get to the 2% target soon, as most of the decline in these 2 months will be due to the base in 2022 being too high. After June 2023 the CPI trajectory starts to be less certain, and probably more sticky at those levels. Hence, in my opinion, this big decline in CPI is still not enough to change anytime soon the FED plan to keep rates higher.

After CPI numbers, the market is now pricing an almost 100% possibility of a pause in rates in June. But a rate hike in July is still at 60%.

Key Takeaways from May CPI numbers:

• Shelter and used car prices are the majority of the increase in May core CPI, this is positive as we already know the lags in data in these 2 components, they will start to moderate in coming months.
• Excluding shelter and used cars from core CPI(which has lag effects in the data), most other important components saw very moderate or even negative contributions.
• Transportation continues to be the biggest contributor for supercore numbers, which saw an acceleration again in May, especially motor vehicle insurance. This component is considered to be highly dependent on labor costs or repair costs.
• Energy price declines are having a very negative contribution on headline CPI, which we have to remain cautious, as energy is a very volatile component, especially in the current environment with cut supply efforts.

Summary

https://www.bls.gov/news.release/pdf/cpi.pdf

• U.S consumer price index(CPI) rose 0.1% in May, in-line with estimates and down from 0.4% in April.
• Annually, headline CPI rose 4%, below the 4.1% estimate and reflecting a slowdown from April's 4.9%.
• Core CPI grew by 0.4% in May and 5.3% year over year, both in-line with estimates.

Biggest Contributors

https://twitter.com/SteveMiran/status/1668613611747516416/photo/1

• The energy index fell 3.6 percent in May after rising 0.6 percent in April. The gasoline index decreased 5.6 percent in May, following a 3.0-percent increase in the previous month.
• Other energy components also declined. The natural gas index decreased 2.6 percent over the month, the fourth consecutive decrease in that index. The index for electricity decreased 1.0 percent in May, after falling 0.7 percent in both April and March. The fuel oil index also declined in May, down 7.7 percent.
• The shelter index was the largest factor in the monthly increase in the index for all items less food and energy with a 0.6% increase
• Other major contributors to the core number in May was the index for used cars and trucks, which increased 4.4 percent, and the index for motor vehicle insurance which increased 2.0 percent.
• Several indexes declined in May, led by the household furnishings and operations index which fell 0.6 percent over the month. This was the first decline in that index since June 2021 and also the largest 1- month decline since August 2009
• The index for airline fares decreased 3.0 percent over the month, following a 2.6-percent decline in April.

https://twitter.com/zerohedge/status/1668600334745325568

Categories watched by the FED

Index	M/M	Y/Y
Core Goods	0.60%	2%
Core Services	0.40%	6.60%
Shelter	0.60%	8%
Services less shelter "super-core"	0.20%	4.60%

https://twitter.com/M_McDonough/status/1668598249228312576

CPI expectations

May 2023 headline CPI is expected to have a significant decline from 4.9% in april to 4.1%, especially since comps from may 2022 are very significant. However, core prices are expected to continue in the 5%+ range, and well above the FED targe.

Some developments during the month: (more details: Consumer Price Index)

• Wages increased 0.3% during may, they were up 4.3% y/y, matching the smallest increase since mid-2021, but stil above historical averages.
• Energy prices saw prices decline during may, this will be reflected in a significant lower energy CPI.
• Food prices was down 2.6 percent in may, and 22.1 percent y/y, we can continue to expect lower Food CPI prices, especially due to its lags.
• Supply chain continue to fall below the index’s historical average in may.
• Housing prices had again an increased of 1.5% month-over-month in may. Lags are expected to start to reflect a more modest shelter CPI in coming months, however recent price increases could mean that the moderation could be limited in the short term.
• Used Car decreased 2.7% m/m and new cars had a modest increase of 0.5% in may. But, May CPI data is most likely to still reflect the significant increases in prices that vehicles saw during Q1 2023.

The markets are now pricing a pause in June meeting, with 78% probability. But possibility of a hike in July is at 58%

Range:

• CPI: 3.9% - 4.3%
• Core CPI: 5.2% - 5.4%

Escenario	Market reaction	Probability by Magaly
Both CPI and Core CPI below expectations	5%+ rally	5%
CPI in line but Core CPI below expectations	2-3% Rally	15%
Both CPI and Core CPI in line with expectations	Flat	30%
CPI in line but Core CPI above expectations	1-2% drop	40%
Both CPI and Core CPI above expectations	4% drop	10%

Consensus forecast

Variable	Forecast	Previous	Actual	Market Reaction
Core CPI (MoM)	0.40%	0.40%	0.40%
Core CPI (YoY)	5.30%	5.50%	5.30%
CPI (MoM)	0.20%	0.40%	0.10%
CPI (YoY)	4.10%	5.00%	4.0%

FED Cleveland Forecast

	YoY Change		MoM Change
Month	CPI	Core CPI	CPI	Core CPI
May-23	4.13	5.34	0.19	0.45
June-23	3.27	5.12	0.39	0.43

Institutions Forecasts

INSTITUTION	FORECAST
BARCLAYS	4.0%
BLOOMBERG	4.0%
CIBC	4.0%
CITIGROUP	4.0%
CREDIT SUISSE	4.0%
MORGAN STANLEY	4.0%
TD	4.0%
VISA	4.0%
WELLS FARGO	4.0%
UBS	4.1%
BMO	4.1%
HSBC	4.1%
GURGAVIN CAPITAL	4.1%
GOLDMAN SACHS	4.2%
JP MORGAN	4.2%
RBC	4.2%
SCOTIABANK	4.3%
MEDIAN	4.1%

Commentary

Moody's

• “The most encouraging thing is the year-over-year growth rates are going to come down pretty sharply,” said Mark Zandi, chief economist at Moody’s Analytics. “The headline number is going to feel good, it’s going to be encouraging, showing inflation is moving in the right direction. More fundamentally, I think inflation is moving in the right direction.”
• “Inflation is coming in and they might get a number that gives them comfort that things are moving in the right direction,” Zandi said. “They don’t need to raise rates again.”

Center for Economic and Policy Research

• “Inflation has been trending downward for the last year,” said Dean Baker, co-founder of the Center for Economic and Policy Research. “If this trend continues, the Fed can declare victory and focus on the employment side of its mandate. However, inflation is still well above the Fed’s [2%] target, so the question is whether the downward path is continuing or whether we have hit a plateau.”

Bill English, former Fed official

• “Whether or not they can get a soft landing depends on large part on how inflation plays out,” said Bill English, a former Fed official who is now a finance professor at the Yale School of Management. “If inflation stays high, they just have to raise rates more. It may be the path for employment and output that’s consistent with getting inflation down to 2% in a couple of years is not one that you would like.”

Vanguard

• We believe inflation will continue to moderate but remain above 3% through year-end, and unemployment will trend higher to a still reasonable 4.5%,” Sathe said in a client note. “In that scenario, the Fed cutting its policy rate this year is unlikely.”
• “Our model suggests that it’s nearly three times as likely that the Fed will raise its target for the federal funds rate or keep it on hold this year than that it will cut rates,” Sathe said. “Our model’s output underscores our conviction that the Fed’s fight against inflation hasn’t yet reached an inflection point.”

Wells Fargo

• “Given the mixed messages, the Fed appears to deem it prudent to back off the recent rate tightening campaign and assess the economic situation before deciding if any more action is needed to achieve the FOMC’s inflation goal,” Sam Bullard, managing director and senior economist
• “Assuming (the Fed’s Open Market Committee) leaves rates alone this week, there is a meaningful chance that the committee will hike another 25 bps in July, which is our current call,” he added.