Daily Spotlight: More Progress on Inflation

Summary

Two important inflation reports recently indicated that overall pricing pressures have retreated from peaks in 2022. But both also confirmed that inflation remains above the Fed’s target of 2.0% and indicated progress to that level may be hard to achieve. Let’s take a deeper dive into the Consumer Price Index (CPI). According to the latest report, the overall inflation rate in May of 3.3% was lower than the prior month’s 3.4%. That good news was supported by a decline in the core CPI rate. The core CPI excludes the impact of food and energy and rose at an annual pace of 3.4% over the past year, lower by 20 basis points compared to the prior month. What’s propping up core CPI? Transportation Services (+10.5% year over year) and Shelter (5.4%). These elements of the index have prices that don’t typically fall sharply. Meanwhile, pricing pressures for automobiles and food eased somewhat. The other inflation report was the Producer Price Index (PPI). The PPI measures pricing trends farther up the supply chain, at the manufacturing level. Here, we also saw a modest decline in the rate of inflation. The PPI final demand annual rate through May was 2.2%, compared to 2.3% in April, and the prices for both processed and unprocessed goods for intermediate demand outright declined. Looking ahead, the June 2022 CPI rate marked the peak reading for the index this

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