Everyday Prices Were Unchanged in May

The EPI was unchanged in May after increasing 0.6 percent in April.
EPI expenditure categories and May 2017 weights

AIER’s monthly Everyday Price Index was unchanged in May because a decline in gasoline prices offset increases in food prices. The EPI measures price changes that people see in everyday purchases such as groceries, gasoline, utilities, and personal-care products. It excludes prices of infrequently purchased, big-ticket items (such as cars, appliances, and furniture) and prices that are contractually fixed for prolonged periods (such as housing). Over the past 12 months the EPI has risen 1.7 percent.

The more widely known price gauge, the Consumer Price Index (reported by the Bureau of Labor Statistics), increased 0.1 percent on a seasonally unadjusted basis in May and has increased 1.9 percent over the past 12 months. The CPI is being led higher by energy prices and prices for core services, which include shelter, medical care, and education. Overall, the United States does not appear to be experiencing broad-based price pressures but pockets of concentrated price increases.

In May, gasoline prices decreased 1.4 percent. Gasoline prices fell across all grades, with regular dropping 1.5 percent, midgrade decreasing 1.1 percent, and premium decreasing 0.6 percent. Despite the decline, gasoline prices have risen 5.9 percent over the past year. Rising crude production in the United States has helped relieve some pressure at the pump. Crude-oil production has rebounded from 8.6 million barrels per day last year to over 9.4 million barrels per day in May. Despite the decline in May, gasoline prices have risen 5.9 percent over the past year.

Prices at the grocery store increased 0.1 percent in May. Cereal and baker products increased 0.2 percent, while meats, poultry, and fish increased 0.5 percent. Fruits and vegetables increased 0.1 percent. Over the past year, food-at-home prices have declined 0.2 percent. Food prices have been restrained by lower agricultural prices. The GSCI agriculture-and-livestock price index has fallen 8.9 percent over the last year. Compared to historical standards, food-at-home prices are subdued. Over the past 15 years, food prices have risen an average of 2.1 percent per year.

Restaurant prices also rose in May. Prices at full-service restaurants and casual restaurants both increased 0.2 percent in May. Over the past year, restaurant prices have increased 2.3 percent, in line with their recent annual growth rate of 2.5 percent. Solid consumer demand should continue to support restaurant prices. Steady consumer demand has helped bottom lines. Restaurant companies in the S&P 500 have seen solid revenue growth, healthy margins, and higher earnings.

Inflationary pressure may rise if the economy continues to grow and causes credit growth to accelerate. The monetary base, which includes currency in circulation and excess bank reserves, surged coming out of the Great Recession. A large part of the increase in the monetary base has been excess reserves held at the Federal Reserve, which have risen to an unprecedented $2 trillion. Inflation will likely rise if banks loan out more of their excess reserves. The environment for loan growth is favorable. The labor market is healthy, with the unemployment rate at a post-recession low, and household balance sheets have improved. Keep an eye on the labor market and loan growth for signs of impending price pressure. 

The EPI was unchanged in May after increasing 0.6 percent in April.
EPI expenditure categories and May 2017 weights