US CPI Review: May 2023 (with bonus flash June estimates & Fed implications analysis)

Disinflation continues at pace, but the Fed's focus on lagging core inflation means that it's repeating its prior mistakes in reverse.

As expected, the US CPI recorded major disinflation in May.

On an annual basis, the CPI saw its growth rate fall to just 4.0%, down from 4.9% in April. This exceeded my expectation for a decline to 4.2%. Once lagging shelter is taken out of the equation, annual growth fell to just 2.1%. This was down from 3.4% in April, and again exceeded my forecast for a decline to 2.3%.

As expected, core inflation, which is a much more lagging indicator of inflation, did not see as significant of a decline, but nevertheless continued to move in the right direction.

Core CPI growth fell to 5.3% in May, down from 5.5% in April (vs my 5.4% forecast). Core CPI ex-lagging shelter saw a more material decline, falling from 3.7% in April, to 3.4% in May (vs my 3.5% forecast).