U.S. Consumer Price Index (May 2022)

Thomas Feltmate, Director & Senior Economist | 416-944-5730

Date Published: June 10, 2022

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Data Release: Inflation back to breaking records in May  

  • Consumer price inflation rose by 1.0% month-over-month (m/m) in May – an acceleration from the 0.3% recorded the month prior. On a year-over-over basis, inflation accelerated by 0.3 percentage points from April, rising to 8.6%. 
  • Energy prices were a big contributor to the monthly gain – rising 3.9% m/m – as both gasoline (4.1% m/m) and energy services (3.0% m/m) were up on the month. Food prices also continued to accelerate, rising 1.2% m/m and are now up over 10% on year-ago basis. 
  • Core inflation (excludes food and energy) rose 0.6% m/m – matching April's gain. On a year-over-year basis, core inflation edged lower by 0.2 percentage points compared to April, rising by 6.0% y/y.
  • Price growth across service categories remained relatively broad-based, with core service prices rising 0.6% m/m. Shelter costs (0.6% m/m) were again a meaningful contributor, though transportation (1.3% m/m) and medical services (0.4% m/m) also notched gains. Airline fares decelerated relative to April, though were still up by 12.6% m/m. 
  • After having shown some signs of easing in recent months, core goods prices – includes all goods except food and energy commodities – accelerated by 0.6% m/m. Gains were seen across all major categories, with used (1.8% m/m) and new (1% m/m) vehicle prices seeing the biggest moves, while apparel was up 0.7% m/m.     

Key Implications

  • After having shown some signs of easing in April, headline inflation reversed course and accelerated to a new multi-decade high in May. Unfortunately, the recent move higher in energy prices will only exacerbate the problem over the near-term, and keep sustained upward pressure on the headline measure through the summer months. 
  • The broad-based acceleration in core goods prices came as a surprise, particularly after having shown some signs of softening in recent months. With many big box retailers reportedly carrying excess inventory, and consumer demand already showing some signs of pivoting towards more service-based consumption, we'll likely start to see some discounting in seasonal items in the months ahead – helping to ease some of the price pressures on select core goods items. 
  • The job ahead for the FOMC is not an enviable one. Inflation pressures are proving to be both more persistent and far-reaching than previously thought, implying more policy action will need to be taken in the months ahead. We expect the Federal Reserve to raise rates by an additional 50bps next week (taking the policy rate to 1.5%) and also signal more 50bps moves to come through the second half of the year. 

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