Eggs and Gas

Prices paid by consumers increased 0.4 percent in May 2015 according to the Consumer Price Index from the Bureau of Labor Statistics.  This is the largest monthly increase since February 2013.  On a year-over-year basis the CPI was unchanged, thus not negative for the first time since December 2014.  After an extended period of low inflation and even bouts of deflation in this measure of prices, something smells foul.

Two components pushed the index higher in the period.  After nearly no change in April, gasoline prices rose 10.5 percent in May.  Despite the monthly jump, prices at the pump are lower for the 10th consecutive month on a year-over-year basis, down 25.0 percent.  Eggs also jumped in the period.  Bird flu has hit chicken and turkey farms in the West and Midwest.  Millions of egg-laying birds were destroyed which put constraints on the supply of eggs.  The price of these single cells increased 2.6 percent in May.

Beneath the headline, inflation was much tamer.  Excluding food and energy, prices were just 0.1 percent more expensive than in April.  This happens to be the smallest uptick in 2015.  Compared to a year earlier, this core measure of prices is just 1.7 percent higher.

Inflation continues to be subdued according to the Consumer Price Index.  The subtle monthly uptick and relatively mild year-over-year statistic may provide our central bank another reason to delay changing monetary policy.  Output is growing but doing so slowly, and the Federal Reserve probably feels it should err on the side of too much inflation and a boiling economy versus being partially blamed for extinguishing the flame that is keeping output and price increases lukewarm.    (by C. Cox)