The Consumer Price Index (CPI) fell 0.3% in May

Implications: Gas prices plummeted in May. As a result, consumer prices fell 0.3% in May, coming in slightly below consensus expectations. Excluding energy, consumer prices were up across the board. "Core" inflation, which excludes food and energy, was up 0.2% again in May and is up 2.3% from a year ago, hovering near the largest 12-month gain since September 2008. In the past three months, core prices are up at a 2.7% annual rate. These figures are already above the Federal Reserve's supposed target of 2%. Meanwhile, monetary policy is very loose and housing costs (which are measured by rents, not asset values) are rising. Owners' equivalent rent was up 0.1% in May and is up 2.1% versus a year ago. The ongoing shift from home ownership toward rental occupancy should boost this inflation measure even more in the year ahead. With loose monetary policy and housing costs accelerating, it's hard to see core inflation getting back down to the Fed's 2% target anytime soon. On the earnings front, "real" (inflation-adjusted) wages per hour were up 0.3% in May. Although these earnings are down 0.1% from a year ago, the number of hours worked is up 1.8%, giving consumers more purchasing power. In other news this morning, new claims for jobless benefits increased 6,000 last week to 386,000. Continuing claims for regular state benefits declined 33,000 to 3.28 million. Recent data on claims suggest weak payroll growth in June, roughly 50,000 non-farm and 60,000 private, although data over the next two weeks may revise this forecast. Regardless, June payroll growth has been relatively weak the past few years, so don't read too much into those figures. Job growth should accelerate again in the second half of the year.

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Posted on Thursday, June 14, 2012 @ 11:19 AM

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