Another Tame Inflation Report

The CPI report came out this morning and it was another tame report. For May, consumer prices rose just 0.1%. That matched Wall Street’s expectations. That’s after a 0.3% rise in April. In the last year, consumer prices are up 1.9%.

The core rate, which excludes food and energy, was also up 0.1%. In the last year, the core rate is up 2.0%.

Gasoline prices fell 0.5% in May after rising 5.7% in April. Food prices rebounded 0.3% in May after dipping 0.1% in the prior month. Food consumed at home increased 0.3% last month.

Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.3% in May after rising 0.3% in April.

Healthcare costs increased 0.3%, matching April’s rise. The solid increase in healthcare costs at both the consumer and production levels last month suggests a pickup in the core PCE price index in May.

The cost of hospital services increased 0.5% in May and the cost of doctor visits ticked up 0.1%. But the prices for prescription medication fell 0.2%.

Apparel prices were unchanged in May after tumbling 0.8% in the prior month. They had declined for two months in a row after the government introduced a new method and data to calculate apparel prices.

Prices for used motor vehicles and trucks tumbled 1.4%. That was the largest drop since last September and marked the fourth straight monthly decrease. The cost of motor vehicle insurance fell 0.4%, the most since May 2007. There were also decreases in the cost of recreation.

But prices for airline tickets, household furnishings and new vehicles rose last month. Household furnishings are likely to trend higher in the coming months because of U.S. President Donald Trump’s decision in early May to slap additional tariffs of up to 25% on $200 billion of Chinese goods.

Here’s the real Fed funds rate based on core inflation.