Annual inflation rate slowed again in May
For many households, the stats are still not a sign of major economic relief
As many readers of this newsletter know, I work for the CSU system. I am an economics professor at CSUSB. CSU faculty are covered by a collective bargaining agreement with the CSU. The union which represents us is the California Faculty Association (CFA).
The CFA is currently in the initial bargaining phase for salary negotiations for the 2023-2024 academic year, and has pushed for a 12% general salary increase for all faculty. This seems like a lot, but the 12% increase proposal is due, in major part, to the rising cost of living in California since coming out of the pandemic. Since May 2021 (i.e., over the last 2 years), the “all items” CPI (an index of the price level) for the Inland Empire has risen from 113.222 to 128.768, which is a 13.7% increase. Some parts of California have had even higher inflation over the same period. Many households have felt the pain of higher grocery, gas, and housing prices.
With all this talk of inflation denting consumer budgets, the question turns to: is relief in sight? Year-over-year inflation slowed down from 4.6% in March to 3.9% in May. See the table above. The headline rate was led by a 5.1% year-over-year reduction in transportation prices, while food and beverages inflation (+7.4%) and housing inflation (+7.6%) remained stubbornly high. Given that these are two highly visible expenditure categories which compose a major of the typical I.E. resident’s budget, you can’t call a slightly lower headline number economic relief. Households remain squeezed by the higher prices.
Housing prices continue to move “against the grain”, increasing even as the headline “all items” inflation rate cools down. See the chart above, which plots the shelter inflation rate against the all items rate. As you can see, the light green and purple lines moved together in most of 2021 and early-2022. But when the light green line began to decline later in 2022, the purple line continued to go up, and is now higher than the light green line, meaning that shelter inflation is above all items inflation.