Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

At Its Core Price Inflation Still Running Hot

  by    0   1

The Consumer Price Index (CPI) increased by the smallest annual amount in more than two years in May.

This means the inflation fight is over and inflation lost, right?

Not so fast.

As always, you need to look beyond the headline numbers. And when you drill down to the core, it’s clear that price inflation is still running hot.

The CPI was up just 0.1% month-on-month, with the annual increase coming in at 4%, according to the latest Bureau of Labor Statistics data. This is certainly a big improvement on the 1% month-on-month increase and the 8.3% annual increase we saw in May 2022. But price inflation still remains twice the Federal Reserve’s 2% target.

And when you dig into core CPI, the news isn’t nearly so good. In fact, it’s downright bad.

Core CPI, excluding food and energy prices, rose 0.4% month-on-month. On an annual basis, core CPI rose by 5.3%.

To put that number into perspective, the core CPI increase in May 2022 was 6%. That means the increase in core CPI has barely budged.

Looking at the monthly increases so far in 2023 confirms that core CPI remains sticky. It rose by 0.4% in January, 0.5% in February, 0.4% in March, 0.4% in April, and by 0.4% yet again in May. That averages to 0.42% per month or 5.4% annually.

If you go by the core CPI, and everybody swears it’s a better price inflation gauge because it is less volatile, then you have to conclude that inflation hasn’t budged.

And again – I can’t emphasize this enough – you will notice that all of these numbers are well above the Fed’s 2% inflation target.

Keep in mind, inflation is worse than the government data suggest. This CPI uses a formula that understates the actual rise in prices. Based on the formula used in the 1970s, CPI is closer to double the official numbers.

DIGGING INTO THE NUMBERS

A deeper look at the data reveals more reasons to temper your optimism.

First, the drop in annual CPI this month was partly a function of math. A huge 1% month-on-month increase from a year ago dropped out of the calculation.

As we explained last month after the release of the April CPI data, math is about to turn on the CPI calculation.

The CPI last April was 0.4% which means the drop is due to a bigger number coming off the board. This will likely play into the May and June CPI especially as 0.92% and 1.21% fall off the YoY calculation. This will greatly help the CPI YoY come down further over the next two months.”

Second, a big drop in energy prices papered over increasing prices in other categories. Overall, energy costs were down a whopping 3.6% from April to May. On an annual basis, energy prices have dropped 11.7%. Gasoline prices are down over 20% from this time last year.

But the only non-energy categories to chart price decreases were new cars and medical services.

Food prices have moderated, but continue to increase every month. And notably, commodity prices charted a 0.6% month-on-month increase. These are raw materials, meaning these rising prices may ooze into other categories in the month ahead.

SUMMING IT UP

Price inflation isn’t dead.

It has certainly moderated from its peak a year ago if you only consider the headline numbers. But if you factor in the core, price inflation hasn’t moderated at all. It’s rising at almost the exact same pace it was one year ago.

And there is nothing in any of this data to indicate that the increase in CPI will fall to 2% in the near future.

The CPI data came out before the June Federal Reserve meeting kicked off. Most pundits think the Fed will pause rate hikes, although Powell and Company will almost certainly keep up the hawkish talk and try to convince everybody they are still in the fight.

They can do that now because they can plausibly argue the economy appears to still be humming along. The real question is what will the Fed do when the recession hits and something else big breaks in the economy or the financial system?

If the Fed holds true to form, it will pivot and start cutting rates to prop up the sagging economy. Moderating CPI data gives them the cover to make that pivot. But that will mean even more inflation coming down the pike.

Free Silver Report

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

The Educational Cost of Government Meddling

The cost of higher education has skyrocketed. And we have the government to blame.

READ MORE →

The Fed vs. The Treasury: All Roads Lead to Inflation

In the fight against inflation, is it the Fed or the Treasury that calls the shots? The answer is, it’s both. The Fed raises interest rates to make loans less attractive and bring inflation down, but The Treasury has its own set of magic tricks to artificially “stimulate” or “tighten” the economy as well. One of […]

READ MORE →

AI’s Disruptive Effect on Traditional Assets

Artificial Intelligence has already had an incredibly disruptive effect on many industries. It has allowed inexperienced workers the ability to increase their productivity and outpace older workers with less tech-savvy. It has begun to help some companies make efficient decisions that they would have been blinded to if they had only considered their own industry conventions. AI is different from many other […]

READ MORE →

The Copper Bull: Speculation vs. Fundamentals

Copper has gone mad: Liquidated shorts from a flood of speculators, an AI bubble, a supply crisis, and a renewable energy craze have all combined with high global inflation to recently send it to historic all-time highs. While I believe there will be major corrections as some of these factors come back down to earth, the most important one — […]

READ MORE →

How the Regulatory State Cripples Small-Business

Politicians parrot on about small businesses being the backbone of the economy, only to pass the regulations that stifle them. In 2024, several federal agencies instituted new regulations on small businesses. These agencies included the Financial Crimes Enforcement Network, the IRS, and the Consumer Financial Protection Bureau. The new restrictions add to an exponentially increasing mountain of […]

READ MORE →

About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
View all posts by

Comments are closed.

Call Now