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CPI: Apparel, Airfares and Used Cars Lead Declines

June 10, 2020

Bottom Line: Core consumer price inflation fell for the third straight month in May as airfare and apparel prices led declines again. Airfares are now down 29 from year-ago levels, while apparel prices are down nearly 8%. Used car prices fell for the second-straight month amid shutdowns for the novel coronavirus. Headline inflation, including energy and food prices, fell slightly, mostly due to lower gasoline prices as food prices rose modestly. Among the largest moving core categories, Owner's Equivalent Rent, a key measure of the cost of shelter, was up 0.26%, rebounding slightly from its slowest pace in over a year. Medical care commodity prices rebounded slightly as elective procedures restarted in many areas of the country. Overall, the initial impact of the shutdowns due to the novel coronavirus is deflationary. Going forward, expect increased volatility in the coming months -- but the medium-term risks to inflation remain firmly to the downside.

The CPI FELL by 0.05% in May, compared with market expectations for no change.

  • Food prices increased by 0.72% while energy prices fell by 1.8%. Prices for gasoline fell by 3.5% while prices for fuel oil declined by 3.1%, prices for electricity slipped by 0.8%, but prices for natural gas rose by 0.8%.
  • Energy prices are now 18.3% BELOW their year-ago level.
    Overall consumer prices are now 0.2% ABOVE their year-ago level; in May 2019, consumer prices were 1.8% ABOVE their year-ago level.
The Core CPI FELL by 0.06%, compared with market expectations for no change of 0.00%.
  • Prices for commodities excluding food and energy commodities fell by 0.2%.
  • Gains in alcoholic beverages (+0.8%), new vehicles (+0.3%), were offset by declines in apparel (-2.3%), and used cars & trucks (-0.4%).
  • Prices for services excluding energy services fell slightly with a further decrease in airfares (-5%) partially offset by increases in medical care services (+0.6%), owner's equivalent rent (+0.3%), and shelter (+0.2%).
Core consumer prices are now 1.2% ABOVE their year-ago level; in May 2019, consumer prices were 2.0% ABOVE their year-ago level.

Article by Contingent Macro Advisors