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Brent Meyer |

Economist

Brent Meyer

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

07.02.08

Economic Trends

May Price Statistics

Michael F. Bryan and Brent Meyer

The CPI rose 8.1 percent (annualized rate) in May, pushed up, in part, by a 67.8 percent increase in energy components. Over the past three months, the CPI is up 4.9 percent. The CPI excluding food and energy (core CPI) increased 2.5 percent in May, rising at a rate above all its longer-term trends and following a 1.3 percent increase in April. Like the CPI, import prices have been affected by oil prices—albeit to a greater extent—as the import price index for all commodities rose 30.9 percent in May and 35.4 percent over the past three months. Unfortunately, it is not just oil prices that are rising. The nonpetroleum import price index increased 6.6 percent during the month and is up almost 13 percent over the past three months. The export price index rose 3.9 percent in May, somewhat more subdued than its longer-term trends.

May Price Statistics

    Percent change, last
    1mo.a 3mo.a 6mo.a 12mo. 5yr.a 2007 avg.
Consumer Price Index
  All items
8.1
4.9
4.0
4.2
3.4
4.2
  Less food and energy
2.5
1.8
2.1
2.3
2.2
2.4
  Medianb
2.2
2.7
2.9
3.0
2.7
3.1
  16% trimmed meanb
4.0
3.5
3.1
3.0
2.6
2.8
Import Price Index
  All commodities
30.9
35.4
20.1
17.8
8.0
11.5
  Nonpetroleum imports
6.6
12.9
10.0
6.6
3.3
3.1
Export Price Index
  All commodities
3.9
9.9
10.4
8.0
4.6
6.1

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

There was an unusual amount of dispersion between the median CPI and the 16 percent trimmed-mean CPI in May, as the 16 percent trimmed-mean measure rose 4.0 percent, while the median increased just 2.2 percent. That last time the trimmed-mean estimators were this far apart was in October 2001. Looking at the component distribution reveals that nearly 36 percent of the CPI’s components rose at rates in excess of 5.0 percent during the month. This, coupled with 38 percent of the index’s components rising at rates less than 1 percent, shows that 74 percent of the CPI was out near the tails of the component price distribution. The 16 percent trimmed-mean incorporated some of those wild component price swings, such as a 30.7 percent increase in car and truck rental prices and a 17.4 percent increase in the lodging-away-from-home component. On the other side of the distribution (but excluded from the 16 percent trimmed-mean), the prices of jewelry and watches fell 18.9 percent, infant and toddler apparel decreased 9.8 percent, and medical care commodities fell 8.5 percent in May. While it may be tempting to tell a story about budget-constrained consumers substituting away from other goods in the face of higher relative fuel prices, it would take more data and careful analysis to prove that point.

The prices of core services (services excluding energy services) rose 4.1 percent in May, following a 1.7 percent increase in April. Over the past 12 months, core service prices are up 3.2 percent. On the other hand, the prices of core goods (goods excluding food and energy commodities) fell 1.6 during the month and are up only 0.1 percent on a year-over-year basis.

Looking forward, professional forecasts see headline consumer prices remaining elevated throughout the rest of 2008 and falling to 2.4 percent by the end of 2009. Of the 48 forecasters surveyed, 36 revised their 2008 inflation forecasts upward in June from their projections in May, and will most likely do so again, as energy prices have continued to rise.