US Consumer Prices for May posted an annualized contraction of 1.3%, exceeding the Bloomberg consensus for a fall of 0.9%, and ushering in the lowest reading since April 1950. The deflation was largely the result of a sharp contraction in energy, which fell 27.3% from the year ago compared to a decline of 25.2% in April. The indicator may worsen in the months ahead as commodities peaked in August 2008 before collapsing sharply as the financial crisis escalated. Despite that, there appears to be some stability in the measure as month-over-month change improved for the second time to 0.1% while core CPI came in positive for the fifth month. Also, the annualized reading of core CPI, a closely watched indicator for foresight into Federal Reserve decisions, matched estimates for a cooling to 1.8% from 1.9% in April. Looking deeper into the releases, the slight overall increase from April was primarily due to higher gasoline costs, which surged 3.1% while settling at a 39.4% contraction from the year ago period. Overall improvement in the monthly figure was led by the transportation sector, which contributed 0.12% to the index as vehicles and gas prices rose, along with a 0.08% boost from commodities.
US Consumer Price Index (annualized)