Consumer Prices in May

The Bureau of Labor Statistics (BLS) said consumer prices fell 0.3% in May at the headline level.  This Consumer Price Index (CPI) is designed to track the prices for an imaginary but generally essential “basket” of good made up of those things you and I probably bought some of in May.  The overall decline in prices is especially attributable to the month’s 4.3% fade in energy costs, with gasoline off 6.8% just by itself.  This brings the year-over-year change down one-half percent to a relatively low 1.7% rate of increase.

After subtracting out food and energy prices to derive their core reading, the BLS reported a 0.2% gain which keeps the year-over-year core CPI figure up 2.3%, unchanged from April, and probably a bit too high for the Fed’s liking (they seem to prefer something at or a touch below 2%).

Few would argue that saving money at the gas pump is a bad thing.  It frees up a few bucks every time we fill up, giving us a little extra to spend in a different facet of the economy should we so choose.  Spreading the wealth around is seen as an economic positive.  But we can’t live on gasoline alone and prices elsewhere remaining unchanged or trending upward aren’t seen in a favorable light by either us or our central bank.

The Fed faces a conundrum.  If they inflate the money supply a bit more in an attempt to stimulate an economy woefully short of positive growth signs, the result would be to risk even higher prices.  If they opt instead to keep their hands in their pockets, resisting calls for stimulus and favoring instead a wait and see policy as Europe sorts out its side of the global economic mess in which we currently find ourselves, unemployment may worsen heading into the upcoming election here at home.  They are surely on the horns of a dilemma, but here at Atlas we see just those two options.  Raising rates is probably the only choice not on the table at present.