Posted on 06/15/2005 5:37:42 AM PDT by Koblenz
Consumer Price Index was released this morning. CPI was down 0.1% in May. Treasuries are up slightly. Core CPI was up 0.1%.
I'll be trading off my prediction big-time, let me tell you...
WASHINGTON (Reuters) - A plunge in energy costs pulled U.S. consumer prices down by 0.1 percent in May, the first drop in 10 months, according to a government report on Wednesday that suggested inflation pressures were under wraps.
Excluding volatile food and energy prices, the popular core consumer price index, rose by a smaller-than-expected 0.1 percent last month, the Labor Department said.
Wall Street economists had expected overall consumer prices to hold steady and prices outside food and energy to rise 0.2 percent.
Energy prices fell 2 percent, the largest drop since July 2004 and the first since January. The cost of gasoline plummeted 4.4 percent, fuel oil costs declined 2.3 percent and natural gas prices edged down 0.2 percent.
The department said food prices rose 0.1 percent.
Outside those volatile areas, price gains were mostly mild.
Housing costs, excluding utilities, were unchanged last month as hotel prices slid 2.4 percent, the second consecutive large monthly drop and the largest on record. That decline helped offset a 0.3 percent rise in the department's measure of homeownership costs.
Economists say gyrating energy prices have increased the volatility of the homeownership cost gauge, which accounts for about 30 percent of the core CPI.
This measure - called owners' equivalent rent -- is constructed by subtracting estimated utility costs from rental prices. When energy prices fall, a smaller slice is taken out of rental prices, making it look as if home price gains are picking up.
Apparel prices held steady last month, while medical care and recreation costs both moved up 0.3 percent. Prices for new vehicles increased 0.1 percent.
The drop in energy prices left workers with more money to spend elsewhere. In a separate report, the department said inflation-adjusted average weekly earnings rose 0.3 percent, the first increase since January. However, over the past year real weekly earnings are down 0.3 percent.
Federal Reserve Chairman Alan Greenspan told Congress last week underlying U.S. inflation was "contained," but added he was not sure whether slowing productivity growth would hit corporate profits or cause core inflation to accelerate.
The Fed has raised overnight interest rates to 3 percent from an ultra-low 1 percent in eight small steps over the past year in an effort to keep inflation at bay.
Financial markets are betting on three more quarter-percentage point rate hikes this year, including one at the Fed's next meeting on June 29-30.
Is this good or bad?
Depends... are you a buyer or a seller? ;)
From a consumers perspective, it's good. I like lower prices. For investors, it may be mixed bag, but since the drop is largely due to energy prices, with only very small increases in other products, that means inflation is staying low, also good for consumers.
Consumer prices drop 0.1 percent in May
That's not necessarily true. Only a few years ago, the gurus were warning people about deflation. The LSM will spin it against Bush anyway.
Deflation is bad for businesses and employment, but good for consumers (who still have a job). Of course, I still hold to the caveat that I'm just an engineer. What do I know?
The LSM will spin it against Bush anyway.
Ain't that the truth.
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