Inflation accelerated to a new three-year high in May, driven by continued increases in energy costs from the Iran war. Energy costs drove more than 60% of the monthly increase, with national gasoline prices jumping more than a dollar since the war began. Energy costs are straining household budgets and eroding purchasing power; inflation has now outpaced wage growth for the second straight month. As the ceasefire remains tenuous, energy prices are expected to remain elevated for months, continuing to put upward pressure on inflation and further complicating the Fed’s path toward its 2% target, especially given the recent strong job report.
On a non-seasonally adjusted basis, the Consumer Price Index (CPI) rose by 4.2% in May from a year ago, following a 3.8% increase last month, according to the BLS latest report. This was the largest annual increase since April 2023.
The “core” CPI, excluding the volatile food and energy components, increased by 2.9% over the past twelve months, following a 2.8% increase in April. The housing shelter index, which makes up a large portion of “core” CPI, rose 3.4% over the year, following a 3.3% increase last month. Meanwhile, the component index for food rose by 3.1%, and the energy component index increased by 23.5%, the largest annual increase since September 2022.
On a monthly basis, the CPI rose by 0.5% in May (seasonally adjusted), and the “core” CPI increased by 0.2%.
The price index for a broad set of energy sources rose by 3.9% in May, with increases in gasoline (+7.0%), fuel oil (+3.8%), and electricity (+0.6%), with a minor decline in natural gas (-0.5%). Meanwhile, the food at home index rose by 0.1%, while the food away from home index increased by 0.3% in May.
Outside of energy, other top contributors that rose in May included indexes for communication (+1.3%), airline fares (+2.7%), personal care (+1.0%) and recreation (+0.3%). Meanwhile, the index for motor vehicle insurance (-1.7%), household furnishings and operations (-0.6%), and new vehicle (-0.3%) were among the few major indexes that decreased over the month.
The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.3% in May. The index for owners’ equivalent rent (OER) rose by 0.3%, while the index for rent of primary residence (RPR) increased by 0.4% over the month. NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than core inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster than core inflation, the real rent index rises and vice versa. The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components). In May, the Real Rent Index rose by 0.2%.
This article was originally published by a eyeonhousing.org . Read the Original article here. .
