Inflation report: Consumer Price Index (CPI)  

Gary Pzegeo, CFA

June 13, 2023

The Consumer Price Index (CPI) rose 0.1% in May from the prior month.

The Consumer Price Index (CPI) rose 0.1% in May from the prior month. The core CPI (ex food & energy) rose 0.4%. Both measures were in line with consensus expectations.  Compared to a year ago, the total CPI was up 4.0%, while the core rate rose 5.3%. The annualized six month rates of change were 3.2% for the total and 5.1% for core.

According to the Bureau of Labor Statistics, the index for shelter was the largest contributor to the overall monthly increase in the CPI.  Housing inflation increased by 0.6% in May but the sector has begun to decelerate as measured by the CPI.  The large rental components are higher by over 8% compared to a year earlier and the annualized pace of gains over the last 3- and 6- months were down to +6.4% and +7.7%, respectively.  Energy prices were lower by 3.6% in the month and are down over 11% over the past year, contributing to the disconnect between the headline and core measures.  Core services inflation excluding housing, more commonly known as “super-core” inflation increased by 0.2% in May and is up by 4.7% over the prior year.  This measure is seen as a proxy for service sector wages and has been slowly decelerating over the last few months.

Bottom line: The year-over-year headline CPI is running at less than one-half the pace of a year earlier but core inflation remains well above the Federal Reserve’s (Fed) long-term target.   The pace of deceleration in headline inflation and concerns over general credit conditions should give the Fed enough reasons to keep rates steady at this week’s meeting.  The slow pace of change in core inflation, however, may keep them from closing the door on further rate hikes later in the year.  Stock and bond markets responded favorably to the release. Interest rate futures markets discount a small chance for a 25 basis point rate hike from the Fed at its June 14 meeting and have also removed most of the rate easing expectations built-in following the banking sector crisis in March.

Source: Bureau of Labor Statistics


Gary Pzegeo, CFA  joined the firm in 2007 as head of fixed income, focusing on portfolio management, trading, policy formulation and client service.