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Brent Meyer |

Economist

Brent Meyer

Brent Meyer is a former economist of the Federal Reserve Bank of Cleveland.

06.25.09

Economic Trends

May Price Statistics

By Brent Meyer

The CPI rose at an annualized rate of 1.2 percent in May, rebounding somewhat after two consecutive monthly decreases. Still, its 12-month growth rate slipped even further into the red, falling from −0.7 percent in April to −1.3 percent in May. While motor fuel prices jumped up 37.0 percent (annualized rate) in May, other energy prices (such as fuel oil, natural gas, and electricity) continued to decline during the month. Food prices fell for the fourth consecutive month, decreasing 2.4 percent.

Excluding food and energy prices (core CPI), the index rose just 1.7 percent in May, compared to 2.3 percent over the past three months and 1.8 percent over the past year. Alternative measures of underlying inflation trends—the median CPI and the 16 percent trimmed-mean CPI—increased 0.6 percent and 1.1 percent, respectively in May. The sluggish gain in the median CPI was the smallest increase in the measure since April 2003. The longer-term (12-month) trends in the underlying inflation measures all ticked down in May and are now ranging between 1.8 percent and 2.4 percent.

May Price Statistics

  Percent change, last
  1 mo.a  3 mo.a  6 mo.a  12 mo.5 yr.a  2008 average
Consumer Price Index
 All items
1.2
−0.2
−0.4
−1.3
2.5
0.3
 Less food and energy
1.7
2.3
1.9
1.8
2.2
1.8
 Medianb
0.6
1.6
1.8
2.4
2.7
2.9
 16% trimmed meanb
1.1
0.8
1.3
1.9
2.5
2.7
Producer Price Index
 Finished goods
2.9
−2.5
−3.0
−4.7
2.8
0.2
 Less food and energy
−0.7
0.0
1.5
3.0
2.4
4.3

a. Annualized.
b. Calculated by the Federal Reserve Bank of Cleveland.
Sources: U.S. Department of Labor and Bureau of Labor Statistics.

The price-change distribution revealed a somewhat striking shift toward the downside in recent months. Roughly 55 percent of the consumer market basket (by expenditure weight) rose at rates of less than 1.0 percent in May (the highest percentage since April 2003), compared to 38 percent over the prior three months and an average of 29 percent in 2008. Moreover, one-third of the index exhibited outright price decreases in May. Also, just 30 percent of the expenditure-weighted CPI posted increases greater than 3.0 percent in May, down dramatically from an average near 50 percent in 2008.

The Owners’ Equivalent Rent (OER) of primary residence component—a measure of the opportunity cost owners face living in their homes as opposed to renting them—has been trending down lately. OER increased just 1.8 percent in May, compared to a 12-month growth rate of 2.1 percent and an annualized growth rate of roughly 2.8 percent over the past five years. The OER component accounts for nearly one-quarter of the CPI market basket. It is computed from six-month rent changes, a procedure that reduces its monthly volatility but also causes the measure to exhibit some persistence, leading to a relatively large influence over the direction of the overall CPI.