One key measure of inflation has slowed for 11 straight months, falling to its lowest point since April 2021 and plunging roughly 480 basis points over the past year.
Meanwhile, another inflation measure, one Federal Reserve officials are closely tracking and can arguably offer a better indication of pricing trends, is seeing more modest deceleration, showing little progress toward the inflation levels the central bank is aiming for.
The overall consumer price index, which tracks the prices of every product such as eggs, gasoline and airline tickets and is also known as headline inflation, increased 4.1% from May 2022 to May 2023, after a seasonal adjustment, the US Bureau of Labor Statistics reported June 13. On an annual basis, this measure of inflation peaked at 8.9% in June 2022.
Consumer prices excluding volatile energy and food prices, or core inflation, increased 5.3% from May 2022 to May 2023, after a seasonal adjustment. May was the third consecutive month that annual growth in core inflation was higher than growth in headline inflation. Core inflation is now leading its headline counterpart by the highest gap since August 2016.
"It really breaks down to the fact that both food and energy prices have cooled significantly since this time last year," said Thomas Simons, US economist with Jefferies. "As far as I can tell, this is going to continue for the next couple of months, so the gap is going to widen."
Food prices increased 6.7% from May 2022 to May 2023, after a seasonal adjustment, down from the peak annual increase of 11.3% in August 2022 and the lowest yearly increase since December 2021.
Energy prices, meanwhile, fell by 11.3% from May 2022 to May 2023, and the pace of price increases has mostly fallen since spiking 41.3% in June 22. The decline in energy prices was the biggest since June 2020, in the early months of the pandemic.
"Falling energy prices are helping to pull annual headline CPI much lower and with oil prices falling further this trend of headline undershooting core is likely to become more pronounced," said James Knightley, chief international economist with ING.
Persistently high shelter prices were the largest contributor to both headline and core inflation increases, but since the core measure strips out food and energy price changes, the shelter can have an outsized impact on the core index, said Patrick Horan, a macroeconomist with the Mercatus Center at George Mason University.
Shelter prices, which tend to lag changes in monetary policy by roughly a year, may have peaked at 8.2% in March. Shelter prices increased 8% from May 2022 to May 2023, after a seasonal adjustment. This could help bring core inflation down in coming months.
"Since shelter inflation works with a lag, in my view, inflation was understated in 2021 and 2022 and overstated now," Horan said.
Knightley with ING said shelter prices will likely continue to run hot for the next couple of months before softening in the late third quarter and into the fourth quarter.