The Consumer Price Index is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. Why Investors Care
| Released on 6/15/07 For May 2007 | |||||||||||||||||||||||||
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Highlights
Consumer price inflation in May was mixed with the overall figure up sharply due to energy while the core rate was subdued. The overall consumer price index in May jumped 0.7 percent, following a 0.4 percent rise in April. May's overall number was a little above the consensus forecast for a 0.6 percent rise in the overall CPI. The core CPI inflation rate eased with a 0.1 percent increase in May, following a 0.2 percent rise in April. The consensus had expected a 0.2 percent increase in the core rate for May.
Year-on-year, the overall CPI rose to up 2.7 percent in May, increasing from up 2.6 percent in April. The core rate declined to up 2.2 percent on a year-on-year basis in May from up 2.4 percent the month before.
Energy prices again pressured the overall CPI as expected. In the non-expenditure category for energy, prices increased 5.4 percent, following a 2.4 percent gain in April. Food price inflation slowed marginally to a 0.3 percent gain after rising 0.4 percent in April.
The core rate slowed in May but on an unrounded basis, the slowing was barely perceptible. Unrounded, the core CPI rose 0.14978 percent in May, following a 0.17729 percent increase in April. Nonetheless, May's number is very favorable. Helping ease the core rate modest were a 0.3 percent decline in apparel prices, a 0.2 percent dip in prices for new & used motor vehicles, a 0.5 percent drop in public transportation (includes airfare), and a slowing in owners' equivalent rent to a 0.1 percent rise from 0.2 percent in April.
Today's report shows core inflation to be currently well-behaved despite upward pressure from energy costs. Both equity and bond markets should really like the modest core figure.
The consumer price index increased 0.4 percent in April, following a 0.6 percent jump in March. Another rise in energy costs and in food prices were the main reasons for the strong overall CPI number. The core CPI firmed slightly with a 0.2 percent increase in April, following a 0.1 percent rise in March. We can expect oil prices to keep upward pressure on the overall CPI in May but markets will be focusing on the core figure. We have had two goods months of modest core inflation - but we have seen that before, only to have a rebound in core inflation. A third month of 0.2 percent or less would be welcome news for the markets.
CPI Consensus Forecast for May 07: +0.6 percent
Range: +0.4 to +0.8 percent
CPI ex food & energy Consensus Forecast for May 07: +0.2 percent
Range: +0.1 to +0.3 percent
![[Chart]](chart.gif)
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It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the CPI are mainly volatile because of sharp fluctuations in food and energy prices. The core CPI eliminates the sharper fluctuations. |
![[Chart]](chart_1.gif)
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Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core CPI does not fluctuate as much as the total CPI. |
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