May CPI: A Story of Oil, Chips and Vegetables

Research evidence excerpt

May CPI: A Story of Oil, Chips and Vegetables

UpdateM Inflation Dynamics

Headline CPI rose to 3.2%Y in May from 2.8% in April, with the increase led by

transportation and recreation, education and reading, partly offset by softer

household operations and furnishings, health and personal care, and shelter.

Gasoline still doing the heavy lifting: Transportation remains the dominant driver of the

level and the monthly acceleration. The category contributed 1.7pp to headline CPI and

added roughly 25bp to the monthly change in headline contribution. Within

transportation, gasoline contributed 1.3pp to headline and added roughly 19bp on the

month, with gasoline inflation rising to 33.2%Y from 28.6%. This remains a narrow energy

shock rather than a generalized transportation cycle: purchase/leasing of passenger

vehicles softened, while the pressure was concentrated in operation of passenger vehicles

and gasoline.

Airfares and travel services show cost pass-through, not broad services demand: Public

transportation swung from a drag to a positive contributor, adding roughly 11bp to the

monthly change in headline contribution. The move was concentrated in inter-city

transportation, and specifically air transportation, where prices rose 7.4%Y after declining

in April. Recreation also added to the print, with travel services contributing roughly 12bp,

almost entirely through travel tours. The travel-related impulse is likely fuel-cost pass-

through—directly through airfares and indirectly through travel tours—than stronger

underlying services demand. If gasoline and jet fuel continue to retrace, this channel

should also become less inflationary.

Exhibit 3: Gasoline prices and airfares picked up, but natural Exhibit 4: If energy prices head lower into June and July, the