The CPI data for May provide further affirmation that the Fed will be on hold for some time yet. Inflation pressures are simply not a problem at this juncture. The trend in both total CPI and core CPI is clearly one of disinflation, which is apt to stoke commentary about a possible turn to a deflation environment.Year over Year Change in CPI
Consumer prices declined 0.2% in May, slightly lower than the -0.1% decline in April. The Briefing.com consensus expected the index to fall 0.1%. Total CPI is up 2.0% year-over-year versus a 2.2% increase in April.
Core prices, which exclude food and energy, increased 0.1% (consensus +0.1%). The year-over-year core CPI growth rate has fallen to 0.9%, well below the Fed's target level of 2.0% - 2.5%.
Excess Capacity in the System (and the relationship to price levels)
Source: CPI / Federal Reserve
I think the sleeping issue behind all of this, is what will the role of "Peak Oil" have on inflation. If one subscribes to peak oil, the next question is to what degree does cheap oil leverage any sectors ability to keep costs down, or more importantly gear costs up if Oil increases. Our civilization's carrying capacity is predicted by cheap oil.
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