Consumer Inflation Ebbs, Real Wages Make New Expansion High

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Includes: RINF
by: Hale Stewart

Yesterday, I wrote about the retail sales report and noted that the consumer price report was just as important.

To wit, both recent sources of an uptick in inflation have moderated. First of all, shelter, which is nearly 40% of the index and which had been running at almost 0.3% per month in 2016, has decelerated to only a little over 0.2% monthly this year so far:

Meanwhile, energy prices, which had also been rebounding, have also gone back to negative YoY, with downdrafts in three of the last four months:

The next effect of both of these decelerations has been that headline CPI (red), CPI less shelter (blue), and CPI for energy (green - divided by 5 for scaling purposes), have all sharply decelerated YoY in the last several months:

As a result, headline CPI is only up +1.9% YoY as of May.

The downdraft in consumer inflation means that real wages have resumed growing on a YoY basis:

Moreover, real wages have just made another new high for this expansion:

which also means, although not shown, a new nearly 40-year high.

At least some of the slowdown in consumer spending evident in yesterday's retail sales report was probably due to the decline in real wages recently - which is now, obviously, over. That's another reason I am not terribly concerned about yesterday's retail sales report.

Finally, the slight deflation in May means that real median household income, which was less than 0.1% under its all-time record as of April, as shown in this graph (h/t Doug Short) of Sentier's monthly calculation:

probably finally broke through and established a new all-time record high last month.