Consumer prices rose 0.1 percent in May, reversing a two-month decline. In the first five months of 2013, prices have gone up a very marginal 0.3 percent. This suggests that inflationary pressures have been minimal, with falling energy prices over much of that time providing a buffer for other increases. In May, there was a modest rise of 0.4 percent in energy costs, but this follows declines of 2.6 percent and 4.3 percent in the prior two months, respectively. Since the end of 2012, energy prices have decreased 3.1 percent. Gasoline prices were flat in May, with fuel oil costs down 2.9 percent.
Meanwhile, food prices declined by 0.1 percent in May, a shift from the 0.2 percent increase in April. Similar to energy, food costs were up just 0.3 percent in the first five months of the year. This indicates a deceleration from the 1.5 percent and 0.7 percent paces observed in the same time period in 2011 and 2012, respectively. The largest declines in May were in dairy, cereal and baked products, meats, and nonalcoholic beverages. The cost of food purchased away from home rose 0.2 percent.
Core inflation, which excludes food and energy costs, remains in the acceptable range. The annual pace is currently 1.7 percent, the same rate as in April but lower than earlier in the year. Service sector price increases account for the bulk of this, with year-over-year growth of 2.3 percent. Goods prices have declined 0.2 percent, in contrast, over the past 12 months.
Last week’s producer price index data observed larger jumps in food and energy costs, but the core inflation rate was close to what we see in this report. With the Federal Open Market Committee announcing its plans tomorrow, this report helps keep inflationary concerns at bay, at least for now. While much of the conversation has centered on a possible “tapering” (or slowing) of the asset purchases made by the Fed over the course of the rest of this year, reduced pricing pressures have allowed the Fed to pursue accommodative policies in general.
Chad Moutray is the chief economist, National Association of Manufacturers.
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