Chris Holman welcomes back Kurt J. Rankin vice president and senior economist for The PNC Financial Services Group, Pittsburgh, PA, to discuss the CPI report.
Watch Kurt and Chris discuss consumer prices and inflation and how it's impacting the economy mid-yeat 2023 in the YouTube video shared below:
In their conversation, Chris looked to find out several things from Kurt;
Kurt, how is inflation or the CPI Year-over-Year?
Topline Consumer Price Index (CPI) undercut market expectations for May 2023 how did things shape up with June's numbers?
Core CPI, less Food & Energy, were stubbornly remaining above expectations in May 2023, did anything change there?
Food Away from Home continues to outpace Food at Home price growth, what does this reveal about consumer spending demand & habits?
Shelter prices posted another large gain for May 2023, did that ease any in June?
What are the bright spots? Is the Fed's activity having any impact on Consumer Price Index (CPI) inflation?
- Topline Consumer Price Index (CPI) undercut market expectations for May 2023
- Core CPI, less Food & Energy, stubbornly remained above expectations in May 2023
- Food Away from Home continues to outpace Food at Home price growth, reveal consumer spending demand & habits
- Shelter prices posted another large gain for May 2023, keeping pressure on household budgets despite easing in other price categories
Consumer Price Index (CPI) inflation was mixed across categories for May 2023. While the topline inflation result came in below market expectations at a 0.1% seasonally-adjusted gain for the month and +4.1% year-over-year, Core CPI prices grew at a 0.4% pace for the month which matches the pace seen for the past six months running. The 5.4% annualized pace in Core CPI, which removes the influence of food and energy price movements due to their volatile and policy-agnostic nature, remains well above the Federal Reserve’s 2.0% average inflation target. A reversal in monetary policy from the Fed will require much more progress toward the 2.0% target on Core inflation.
Real Consumer Spending Was Flat
- Both overall and core inflation slowed in May.
- Real consumer spending was flat in three of the past four months of data.
- Consumer spending growth will decline further as economic headwinds increase.
- PNC expects the U.S. economy to fall into recession in late 2023 or early 2024.
Inflation slowed in May, according to data from the Bureau of Economic Analysis (BEA). The overall personal consumption expenditures index rose 0.1% in May from April, down from the 0.4% increase in April. Core (excluding food and energy) inflation was down to 0.3% in May from 0.4% in April. Both inflation measures decelerated on a year-over-year basis. Overall inflation eased to 3.8% in May from 4.3% in April while core inflation cooled to 4.6% in May from 4.7% in April.
Nominal personal income was up 0.4% in May from April, with labor market compensation up 0.5%. Nominal after-tax income increased by 0.2% in May. Real (inflation-adjusted) personal income was up 0.3% in May from April following a 0.1% decline in April (revised from an initial flat reading) and a 0.3% increase in March (revised from 0.2%).
Monthly nominal consumer spending growth slowed to 0.1% in May from 0.6% in April. Real purchases for May were flat driven by a 1.2% decline in consumer spending on durable goods. Real consumer spending growth for April was revised down to 0.2% from 0.5% while the flat reading in March was unrevised. Real consumer spending has been flat in three (February, March, and May) of the past four months.
With a bigger increase in income than spending for the month, the personal saving rate rose to 4.6% in May from 4.3% in April. The saving rate has been 4% or higher in every month of 2023, up from below 4% through most of 2022.
The slowing in consumer spending and inflation in May points to an economy losing momentum. While consumers and businesses continue to show remarkable resilience, economic headwinds are increasing. The drawdown in excess household savings will likely accelerate in the second half of the year as the summer travel season kicks off. Other headwinds include inflation, tighter financial conditions, and softer job and wage gains. PNC expects consumer spending to decline further in the second half of the year, leading to a mild recession starting in late 2023 or early 2024.
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