Consumer Prices Remain in a Sweet Spot

Following in step with producer prices, the Consumer Price Index was milder than forecasts in May. 

The all-items headline advanced just 0.1%, two-tenths below expectations and following a flat reading in April. Core prices, which exclude volatile food and energy items, also rose 0.1% in the month, following a 0.3% gain in April.

Economist Millan Mulraine from TD Securities said the report would seem to dispel concerns about increased inflation, while at the same time he was skeptical that prices would enter a deflationary spiral. “It does appear that U.S. consumer prices remains in a bit of a sweet spot; not too hot, and not too cold,” he said. 

Led by gasoline, energy prices advanced 0.2% in May following two months of declines. Food prices fell for the fourth straight month with a 0.2% drop, attributed to all major grocery store foods.

On a yearly basis, the all-items CPI is in deflationary mode at -1.3%, which is the largest decline since April 1950. The Bureau of Labor Statistics is quick to point out that energy prices are the main culprit here, having fallen 27.3% since May 2008.

Core prices have advanced 1.8% over the past 12 months, two-tenths below the unofficial target rate from the Federal Reserve.

Also at 8:30, the Bureau of Economic Analysis said the current account deficit improved to $101 billion in the first quarter, based on preliminary estimates, which puts the quarterly deficit as its smallest since the final quarter of 2001. Compared to Q4 2008, the deficit was reduced by 34.5%, and as a share of GDP it was at a decade low of 2.9%.

The current account includes the combined balances on trade in goods, services, income, and net unilateral current transfers.

“U.S. demand for imports is much more sensitive to domestic income changes than is foreign demand for U.S. exports, which causes the trade balance to improve when America and its major trading partners slip into synchronized recession,” said Michael Gregory from BMO Capital Markets.

In the months ahead, rising oil prices could reverse this trend, however.