CPI: Services Less Rent Drop Sharply

Bottom Line: Consumer prices rose as expected in May with lower gasoline prices. Core CPI rose 0.44% on the month, slightly faster than in April. Core commodity prices were mostly higher, while services excluding rents were sharply lower. Used car prices were sharply higher, reflecting a lag with the major used car price index, which was higher earlier this year but has dropped most recently. Owner's Equivalent Rent (OER), the largest component of core, was up 0.52%, in line with April. OER was still historically high but remained consistent with the lag between it and actual home prices and rents. Finally, prices for medical care services surged for the second month, while transportation services were lower, led by lower airfares. Overall, while pockets of core price pressures remain, the "services less shelter" category, often cited by Fed Chair Powell, fell sharply and remained firmly in a downtrend, now down -0.6% annualized in the last three months and up just 2.3% annualized in the last six. And shelter prices are still on track to slowly deflate later this year, consistent with the long lag between actual rents and the imputed rent in CPI.