Inflation Trends and the RCF Inflation Scorecard – May 2023

Inflation Falls to its Lowest Level in Over Two Years   

Peter Bernstein, Chief Economist,, 312-431-1540 x1515

The Current Situation

The CPI increased just 0.1% in May 2023, bringing down the year-over-year inflation rate to 4.0%, the lowest reading in over two years.  It also marks a substantial decline since the June 2022 peak, when year-over-year inflation hit 9.1%.  The CPI inflation rate has now declined for 11 straight months! 

But the news is not all good.  Core-price inflation (excluding food and energy prices) remains stubbornly high at 5.3%.  Over the 11 months in which overall inflation fell by more than half, core inflation fell by only 0.6%.    

While core inflation has been viewed as a better measure of inflationary trends than overall CPI inflation, that relationship may no longer be true.  This is because core CPI is heavily weighted toward rent and owner’s equivalent rent (OER), which together comprise more than 40% of the core index.   Two problems arise.  First, OER is a price that no one actually pays – it represents the implicit cost of owning a home instead of renting it.  Second, the persistently high inflation rates for rents and OER may have more to do with the specifics of the housing market – limited supply, rising mortgage rates – than they do with underlying inflationary trends.  And these underlying trends show much lower inflation than the headline numbers.  The CPI excluding rent and OER was up just 2.1% in May vs. a year ago, tantalizingly close to the Federal Reserve’s 2 percent inflation target. 

RCF’s Inflation Scorecard

RCF’s Inflation Scorecard is based on analysis of 20 different price series comprising 98% of the total consumer price index.  Each of these price series represents a portion of the CPI based on household spending patterns.  For example, food purchased for at-home consumption is about 8.7% of the typical consumer’s budget; it has a weight of 8.73 out of a total index of 100. 

Our scorecard presents two metrics to track month-to-month price increases.  The first metric is the share of the index for which inflation in the most recent month is rising (greater than the prior month’s inflation) vs. the share of the index for which inflation is falling (lower than the prior month) or prices fell (deflation).  Because deflation is showing up across more categories, we’ve added a separate measure of the total weight of deflation within the CPI index. 

Our second metric is the share of the index for which the most recent month’s inflation exceeded 0.2%, a monthly rate that corresponds to the Federal Reserve’s target inflation rate of 2% per year.   

The key takeaway is that in May 27.7% of the weighted CPI experienced deflation.  In other words, for over a quarter of the CPI index, prices fell in May vs. April.  The weight of categories with falling prices was almost as large as the weight of categories with rising inflation (28.2%).  For contrast, in June 2022, just 1.9% of the CPI experience a drop in prices while 62.1% of the CPI had higher inflation than during the prior month. 

Our second metric shows that just 53% of the CPI had a monthly inflation rate above 0.2%.  That means that 47% of the CPI had monthly price increases at or below the Fed’s target of an annualized inflation rate of 2.0%.  This month’s reading was the best since April 2021, more than two years ago.  And just one year ago, in May 2022, 91.7% of the weighted CPI had monthly inflation greater than 0.2%.

RCF Inflation Scorecard: May 2023

Analysis of Individual Components of the Consumer Price Index

Sources: Bureau of Labor Statistics and RCF Calculations 1. Inflation direction indicates whether monthly inflation in May was higher or lower than monthly inflation in April.  Deflation means prices fell in May compared to April.


  • Prices in May fell for household energy and motor fuel but also for some key non-energy categories like household furnishings, new vehicles, recreation, and education
  • Food-at-home prices rose in May but by just 0.1%.  Combined with the 0.2% price decline in April and a 0.3% decline in March, consumers are paying less on this item than they have in some time.    
  • In contrast, with new vehicles, the prices for used cars rose 4.4% in May, the same as the substantial 4.4% price increase in April.  Even so. compared to May 2022, used car prices are down 4.2%.  This has become one of the most volatile of the CPI price categories over the past two years. 
  • Why is core inflation so much higher than overall inflation?  Housing!  Rent and owner’s equivalent rent are up 8.7% and 8.0%, respectively, over the past year.  And while rising rents are certainly a problem for people who lease, they are increasingly out of line with lower price increases for most of the rest of the CPI index.  Even here, there is some good news – rents in May rose 0.5%, matching the smallest monthly increase in over a year. 
  • Expect to see another large drop in inflation when the June data are released next month.  That’s when the year-over-year measure will no longer include the large price increases that occurred last spring.  Don’t be surprised if headline inflation in June is closer to 3% than it is to 4%. 
  • More support for lower future inflation comes from the Producer Price Index for May which fell for the third time in four months and is up only 1.1% over the past year.