(By Mani) As expected, energy prices continued to push the overall consumer price index down, while the core index remained above 2 percent on a year-earlier basis. The overall CPI decreased by 0.3 percent in May.
However, core consumer prices behaved very differently than overall consumer prices, indicating that the U.S. economy remains healthy, or at the very least is not weakening.
Core consumer prices increased 0.2 percent during the month, the third-consecutive 0.2 percent increase, after posting a 0.1 percent increase in February. The year-over-year index increased marginally to 2.3 percent.
The overall consumer price index decreased 0.3 percent in May, a little bit stronger than what markets were expecting. The changes in the price of energy were responsible for pushing consumer prices down. According to the report, the index for gasoline declined 6.8 percent in May after dropping 2.6 percent in April. The only energy component that increased in May was the index for electricity prices, which posted an increase of 0.3 percent.
Meanwhile, natural gas prices dropped by a strong 4.1 percent, after dropping 1.8 percent in April.
"What is important to note is that the increase in core inflation paints a relatively healthy economy, an economy that is neither booming nor weakening. Some of the largest increases in prices during May were allocated to big ticket items like cars and trucks and airline fares," Wells Fargo economist Eugenio Alemán wrote in a note to clients.
The used cars and trucks index increased by 1.0 percent during the month after posting a 1.5 percent gain in April and a 1.3 percent uptick in March. Meanwhile, airline fares increased by 1.0 percent in May after posting a 2.1 percent increase in April and a 0.4 percent increase in March.
Thus, the airline industry is showing an important ability to raise prices even in an environment of falling fuel prices. It seems that these past few months have been catching up time for the battered airline sector.
With this report, there is something for everybody. On the one hand, those that are lobbying for QE3 could give the disinflation occurring in the overall price level as an example. On the other hand, the core rate is still showing a relatively healthy economy.