New CPI Data

The figures for consumer prices in May have just been released by the BLS. They show a predictably large 0.6% increase in consumer prices thanks to the rise in the price of oil, but just a moderate 0.2% rise in the core rate (excluding energy and food).

What does this mean? While individuals saw their purchasing power eroded significantly over the month, most of that was just due to oil prices, and may well be reversed in June since the price of oil has fallen over the past few weeks. Also, the moderate growth in the core rate (it has risen by just 1.7% over the past 12 months) suggests that the underlying state of the economy does not seem to be generating any worrisome inflationary pressures. Thus the Fed probably won’t act drastically to raise interest rates at its next meeting – a 25 (or at most 50) basis point rise will probably do for now.