Today’s official U.S. report on consumer inflation (for May) strongly resembled the April release – at least as I saw …Continue reading →
Today’s official U.S. report on consumer inflation (for May) strongly resembled the April release – at least as I saw it. But even though the bump up in the annual headline figure for the Consumer Price Index (CPI) from 3.78 percent to 4.17 percent (the highest since April, 2023’s 4.95 percent), in many ways, that was reasonably good news – especially on the currently paramount energy front.
Specifically, although surging energy prices still led prices higher on month in May, despite the continuing conflict with Iran, their overall sequential acceleration was minimal. After increasing by 3.81 percent in April (a result itself down dramatically from March’s 10.9 percent), they worsened only by 3.88 percent in May.
Moreover, the significant speed up within energy was confined to gasoline. Its price increase quickened from a 5.44 percent monthly pace in April (again – way down from March’s 21.23 percent) to 7.04 percent.
But fuel oil? In April, it became 5.85 percent more expensive (after shooting up by 30.67 percent in March). But in May, its inflation rate had cooled to 3.82 percent.
With all the fuss being raised about massive data center usage massively juicing the price of electricity, those monthly prices have decreased for three straight months – by 0.87 percent in March, by 0.07 percent in April, and by 0.54 percent in May.
And the prices of utility piped gas have been in deflation, too, falling 0.1 percent in absolute terms sequentially in April and by an even faster 0.5 percent in May.
What’s been giving consumers sticker shock – and rightly so – have been the yearly increases in all the energy categories – particularly 23.5 percent for this grouping overall, 40.5 percent for gasoline and 58.9 percent for fuel oil. As for electricity, its annual inflation rate has been a much lower but still robust 5.9 percent.
At the same time, the monthly figures are making clear that, however strong they remain, such inflationary pressures have been subsiding for now. Even better, next month’s gasoline result may be much weaker still, as AAA has reported that today’s motor fuel prices have decreased substantially in absolute terms across-the-board over the last month – including by 8.20 percent for unleaded and by 6.09 percent for diesel.
There’s a major question, though, as to how much longer this favorable gasoline trend will last, as the federal government’s “emergency reserve for oil and fuel supplies is slipping below Biden-era lows to its most exhausted level since the Reagan era—when the nearly 50-year-old U.S. Strategic Petroleum Reserve was still being filled up.” (See this link.)
But don’t forget: According to the U.S. Energy Information Administration’s latest data, “At 426.5 million barrels, U.S. crude oil inventories are about 5% below the five-year average for this time of year. Total motor gasoline inventories increased by 0.2 million barrels from last week and are 6% below the five-year average for this time of year.” So they seem pretty adequate.
Another encouraging note struck by the new CPI release: There still aren’t many signs yet that overheated energy inflation is leaking into the rest of the economy. Take a look at core CPI, which strips out food and energy prices supposedly because they’re volatile for reasons (like wars) having little to do with the economy’s underlying inflation prone-ness.
Its May monthly increase was 0.21 percent – just about half the rate of April’s 0.38 percent. In fact, it’s just about back to where it was in February, just before the war began (0.22 percent).
Of course, the longer the Iran conflict lasts, the stronger – and broader – inflationary pressures are likely to stay or become. Which means that ending it ASAP is crucial not only for national security, but for the economy.
