The overall CPI rose 0.6 percent in April, while the core index rose 0.2 percent. The gap was attributable to large jumps in both food and energy prices. The food at home index rose 0.7 percent in April, while the energy index rose 3.8 percent. Over the last year, the increase in the overall CPI through April has been 3.8 percent, while the increase in the core has been 2.8 percent.

Energy Prices Rose Rapidly in May

Gas prices rose by more than 7.0 percent last month. That will add close to 0.3 percentage points (p.p.) to the month’s inflation rate. There has been some reduction in gas prices at the end of May and start of June, but that will have little impact on the May data.

The other major components of the energy index, electricity and piped gas, are both also likely to outpace the overall rate of inflation in May. The main factor driving up electricity prices is the surge in demand from data centers. The Trump administration’s cancellation of clean energy projects will also have some effect in slowing the rate at which new supply is being brought online.

Food Prices Are Rising Due to Tariffs, Labor Shortages, and Higher Transportation Costs

The fruit and vegetable component of the CPI rose 1.8 percent in April and is up 6.1 percent over the last year. It is likely to rise rapidly again in May. The Producer Price Index showed an increase of 13.5 percent, bringing the year-over-year increase to 56.3 percent. The monthly data are highly erratic, but there will be more inflation in this component showing up at the retail level.

Other items in the food index are also likely to show substantial increases. Beef prices have been on an upward path for the last three years. They rose 2.7 percent last month and are up 14.8 percent over the last year. The price of bakery products has also been on a more modest upward path. The food index will likely rise 0.3-0.4 percent in May.

Rental Inflation Will Be Between 0.2-0.3 Percent in May

There was a jump of 0.5 percent in both the rent proper and owners’ equivalent rent (OER) index in April, bringing the year-over-year rates in the two indexes to 2.8 percent and 3.3 percent, respectively. The April jump was due to an error in the treatment of the missing data for October due to the government shutdown.

BLS effectively counted the October increase in rent as zero, and since the monthly index includes an average for the prior six months, this lowered rental inflation through March. In April, the index no longer included the zero rise for October, leading to the large jump. For May inflation in the indexes will fall back to the pre-October pace, with both indexes rising between 0.2-0.3 percent monthly. The rental index has been consistently showing slightly lower inflation than the OER index.

Medical Services Index Likely to Show Large Jump

The medical services index, which accounts for 6.9 percent of the overall CPI, has been flat for the last two months. This is the result of price declines in components which were almost certainly anomalies. The health insurance index fell by 1.4 percent in March and 0.4 percent in April. It is now down by 6.1 percent year-over-year. It is not plausible that insurance costs (profits and expenses) are actually falling. It is likely that this component will turn around and show an increase in May, and possibly a large one.

The hospital and related services component, which accounts for 40 percent of the medical services index, fell by 0.3 percent in April. This decline will also not be repeated. The component will almost certainly show at least a moderate increase in May. The overall medical services index will likely rise 0.3-0.4 percent in the month.

Transportation Services Will Show Sharp Increase

Airfares have been rising rapidly due primarily to higher fuel prices. They rose 2.8 percent in April and are up 20.8 percent year over year. The auto insurance index has been very tame recently, rising just 0.1 percent in April and 0.2 percent over the last year. This index had been rising at double digit rates earlier in the recovery and has been consistently outpacing inflation for more than a decade. It is likely that it will show more rapid inflation in May. This matters since it accounts for 2.7 percent of the CPI.

New and Used Vehicle Price Index to Show Increases in May

The new vehicle index fell 0.2 percent in April and is up just 0.2 percent over the last year. The used vehicle index was flat in April but is down 2.7 percent over the year. This pattern is inconsistent with the higher prices that we are seeing in the Producer Price Index (PPI) and the Import Price Index. The car index in the PPI is up 1.1 percent over the last year and the light truck index is up 2.0 percent.

The import price index for cars and parts is down by 1.1 percent over the last year, but this excludes the tariffs the Trump administration has imposed on most imported cars. These price increases at earlier stages of distribution are virtually certain to show up to some extent at the consumer level. This matters since these two components account for 6.4 percent of the CPI.

Other Commodities

There has been a mixed picture for inflation in other commodities in recent months. Apparel prices, which had been close to flat, rose 0.6 percent in April after rising 1.0 percent in March and 1.3 percent in February. They are now up 4.2 percent over the last year. Appliance prices fell 0.4 percent in April and are up just 0.2 percent over the last year. Furniture and bedding prices fell 0.3 percent in February and are up 1.3 percent over the last year.

Many of these items are imported. With import prices rising, along with higher transportation costs, the prices of these items should be showing at least moderate inflation in the 0.2-0.3 percent range.

Overall Picture: Another Big Jump Due to Energy, but Also Higher Inflation in the Core

The further rise in energy prices should push overall inflation to 0.7-0.8 percent in May, raising the year-over-year rate to around 4.3 percent. The core index should come in between 0.3-0.4 percent, which will raise the core rate to 3.0 percent year-over-year.