Headline Inflation Came in Under 2.0% again

Commodity Deflation Off-setting Service Inflation, Again


The May Consumer Price Index (CPI) report was released today. It went over like a blimp low on Helium.


Once again we have Commodity deflation and Service Inflation. We are seeing "wage Inflation," according to the May Jobs Report. That value was reported at 3.04% in the article "Record May Worker and Wages Data." The Education and Communication Commodity sector saw deflation of 6.0%, Apparel saw deflation of 3.1%, Recreational Commodities declined 1.0%, Medical care Commodities dropped 0.7%. Meanwhile, Health Insurance rose at 12.4%, Shelter by 3.3%, Water Sewer and Trash Services rose 3.3%, Medical Care Services rose 2.8% and Household Operations rose 2.7%.


The seasonal factors were decreased for Commodities and increased for Shelter and Services. This makes sense. If something doesn't cost as much then you aren't spending as much.  The weighting of food downplayed the inflation. The weighting of shelter was also downplayed. If you bought the same things this year as last year then it would have cost you $76 more this month than May 2018. The government math also says that your $4000 dollars worth of goods and services cost you $4004 dollars last May and $4009 this May. This is supposed to be a static $4000 or less. The eighteen categories normally add up to roughly 100%.


If you use the Urban and Clerical Wage Worker Index then the inflation rate was only 1.67%. This is one of the lowest rates of CPI-U inflation, without going into deflation, that we have recorded since 1980.


The Phillips Curve is broken. The Phillips Curve is a plot of inflation versus unemployment. You can see that we had deflation during May 2009 and May 2015. We actually had 10 months of consecutive deflation during 2015. The hollow dots on the scatter plot indicate the 2009 data, the red dots the 2015 data and the yellow dots are the data from President Trump.


We are earning more money that we were last year. Inflation of goods is non-existent, and often negative. Service inflation and shelter inflation remains real.Fortunately our wage inflation exceeds our "consumption" inflation.


It's the Economy.

 Reclaiming Common Sense