Inflation slows for first time all year

Broadly speaking, it’s worth reiterating that inflation remains nearly twice as high as the Federal Reserve‘s maximum target of 2% and that across multiple measures in the first half of this year, the central bank’s war against price instability seemed to have stalled, if not backslid outright.

With all that being said, May’s consumer price index report provides the first real evidence that inflation has begun to slow down. Thanks to a dramatic decrease in the cost of gasoline and cars, the Bureau of Labor Statistics found that CPI did not change at all last month, with core CPI up just 0.2%. In the 12 months ending in May, CPI was up 3.3%, and core CPI was up 3.4%.

The 3.6% decrease in gasoline prices last month is somewhat of a mirage milked by President Joe Biden as he heads for a grueling reelection. Some of the decrease has resulted from a natural decrease in demand for summer travel, likely influenced by negative consumer sentiment and multiple years of higher inflation compounding, and on the organic supply side, refinery maintenance is done for the season, meaning we can naturally produce more gas. Although gas prices almost never precipitously fall leading into the summer, the White House announced it is entirely depleting a petroleum reserve aggregated in the aftermath of Hurricane Sandy to flood the market with an extra 1 million barrels of gas before Independence Day.

It’s far from the 300 million barrels of oil the Biden administration has depleted from the Strategic Petroleum Reserve, which the White House is trying to refill again at increasingly higher prices.

The car market, which has remained white-hot since the supply chain woes at the start of the pandemic until now, has finally wound down, with new car prices falling by half a percentage point in the last month alone and used car prices down more than 9% over the last year.

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Shelter inflation remains far too high, up 0.4% in one month and nearly three times the Fed’s target over the past year. Even excluding shelter prices, service prices also persist.

This is one good report, not a great one, but it is the first unambiguously good one of the year. The Fed, which will likely announce it will hold interest rates at a 23-year high, will likely welcome the news, but there is no question that the central bank requires a series of reports like May’s to justify relaxing its war on the worst inflation in 40 years.