CPI Report Broken Down

Today’s U.S. reports revealed another surprisingly strong round of CPI gains in May, again led by used car prices and airfare, leaving a steep climb in the y/y metrics that go well beyond the lift initially expected from “base effects.” We also saw a modest -9k initial claims decline alongside a welcome steep plunge in continuing claims of -258k that broke the pattern of disappointments for the continuing claims figures. 

It looks like the market is buying the Feds “transitory” explanation for inflation that it is just “temporary.” However, we believe that rising inflation is here and will likely get worse. In the 1970s, the markets lost 40% of their value once people realized the big jump in inflation. I am not saying that I expect the market to drop 40%, but I do think it will take a dip once investors find out that rising inflation is here.

The Langer consumer comfort index slipped to 55.4 this week from 55.6, but that measure remains above the 54.6 average in May. Today’s data confirm both the rapid climb in prices due to various bottlenecks and supply chain disruptions and solid growth in the real economy with a tightening labor market.

  • CPI rose 0.6% after a 0.8% April gain, leaving the y/y metric surging to 5.0% from 4.2%.
  • CPI core rose 0.7% after a 0.9% April gain, leaving the y/y metric surging to 3.8% from 3.0%.
  • The May headline and core price gains rounded from 0.644% and 0.737%, respectively.
  • CPI energy prices were flat in May, while food prices rose 0.4%.
  • Initial claims fell -9k to a 376k new cycle-low from a prior cycle-low of 385k.
  • Continuing claims fell -258k to 3,499k after a 146k rise to 3,757k (was 3,771k).
  • The insured jobless rate fell to a 2.5% new cycle-low from 2.7% last week and a 2.6% prior cycle-low in the week before that.
  • The weekly Langer consumer comfort index slipped to 55.4 from 55.6, versus a 54.6 average in May.


The CPI report beat estimates again, with May gains of 0.6% for the headline and 0.7% for the core, leaving three consecutive months with outsized increases. The May gains rounded from respective increases of 0.644% and 0.737%. The climb in the y/y headline metric to 5.0% from 4.2% left the two largest gains since 2008, while a y/y core rise to 3.8% from 3.0% left the largest gain since 1992 in May and 1995 in April. 

CPI Goods Number

Consumer prices face an ongoing lift from huge PPI and trade price gains in 2021 that are clearly working their way through the system to the consumer level, alongside widespread capacity constraints and bottlenecks and “base effects” that are lifting the y/y measures.

The last two CPI gains were lifted by increases for used car prices of 7.3% in May after a 10.0% April surge, and for airfares of 7.0% after a 10.2% April gain. Used car prices previously rose just 0.5% in March, but fell -0.9% in each of the prior three months. Airfares rose 0.4% in March, but declined by -5.1% for February, -3.2% in January and -2.5% in December.

The CPI also received a big lift in May from apparel prices, which surged 1.2%, after a 0.3% April gain but drops of -0.3% in March and -0.7% in February. We saw huge winter gains of 2.2% in January and 0.9% in December. We also saw a 1.6% surge for new vehicle prices, after a 0.5% April rise but two prior flat readings.

CPI was restrained in both April and May by energy prices, which were flat in May after a -0.1% April drop, breaking a prior 10-month string of gains. Gasoline prices fell -0.7%, while food prices rose 0.4%.

For further price restraint, medical care service prices fell -0.1%, after a flat April figure and a lean 0.1% March rise, but 0.5% gains in the prior two months. Tobacco prices rose 0.1%, after gains of 0.2% in April, 0.6% in March and February, and 1.8% in January. Owners’ equivalent rent rose by 0.3%, after gains of 0.2% in both March and April, 0.3% in February, and 0.1% in January.

The y/y CPI headline gain surged to 5.0% from 4.2% in April, 2.6% in March, 1.7% in February, 1.4% in January and December, and 1.2% in both October and November.

The core y/y gain rose to 3.8%, from 3.0% in April, 1.6% in March 1.3% in February, 1.4% in January, and 1.6% over the three months through December.

On a moving average basis, CPI headline gains are trending higher after the sharp pull-back in Q2 of 2020. We have 6-month average price gains of 0.481% for the headline and 0.362% for the core, versus respective 12-month average gains of 0.402% and 0.311%.

The Fed has attributed the climb in y/y inflation to “base effects,” but monthly gains have accelerated sharply in 2021 as well, suggesting an uptrend in inflation even if the y/y inflation spike can be partly discounted. As a result, we now assume y/y CPI gains of around 3.9% for the headline and 3.4% for the core by December, which is well past the “base effect” period.

In June, we expect CPI gains of 0.3% for both the headline and core. The y/y CPI gain should slip to the 4.7% area from today’s 5.0%, while the y/y core price gain should sustain the May climb to 3.8%.

We now assume gains of 0.5% for the headline and 0.6% for the core for the May PCE chain price indexes. This would leave a y/y headline metric rising to 3.9% from 3.6% in April, while the y/y PCE core metric increases to 3.5% from 3.1%. Thus, we expect both y/y PCE chain price gains to moderate slightly in June from May peaks.

We expect May consumption gains of 0.6% in nominal terms and 0.1% in real terms, which corresponds to estimated May retail sales drops of -0.6% for the headline and -0.1% ex-autos.

We expect May PPI gains of 0.3% for both the headline and the core and a 0.5% PPI headline rise on the old SOP basis. In addition, trade prices should post May gains of 0.8% for both imports and exports.

Initial and Continuing Claims

The -9k initial claims drop to 376k in the first week of June leaves a 6th consecutive new cycle low, following last week’s unrevised -20k drop to 385k. Claims on an NSA basis fell -58k to 367k, after rising 6k to 425k. Continuing claims finally resumed their steep downtrend, with a -258 plunge to 3,499k after a 146k rise to 3,757k (was 3,771k). The insured jobless rate fell to a 2.5% new cycle-low from 2.7% last week and a 2.6% prior cycle-low in the week before that. The more significant drop in continuing claims is a welcome sign, though we will leave our June nonfarm payroll estimate at 550k.

Initial claims are entering June below prior averages of 427k in May, 580k in April, 724k in March, and 800k in February.

Next week’s June BLS survey week reading looks poised to undershoot recent survey week readings of 444k in May, 566k in April, 765k in March, and 847k in February.

We expect continuing claims drop of -161k between the May and June BLS survey weeks, after drops of -51k in May, -188k in April, -628k in March, -409k in February, and -555k in January.

Our June nonfarm payroll forecast sits at 550k, following a 478k average gain thus far in 2021, leaving a rise that is consistent with a 7.8% GDP growth rate. Our forecast tracks solid 2021 production and retail sales gains, a firm ADP path, a continuing claims down-tilt, a housing boom, and robust sentiment. Vehicle sales remain inventory restrained, as assemblies struggle to rise with ongoing semiconductor shortages.

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