U.S. inflation, industrial production numbers better than they seem at first glance

06/15/2011 12:30 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Well, the numbers out this morning on the U.S. economy do technically qualify as a surprise, I suppose.

The Consumer Price Index climbed by 0.2% in May from April. Economists had projected a 0.1% increase, according to a survey by Briefong.com. The core inflation index, which excludes energy and food prices, climbed 0.3% from April. The consensus among economists had called for a 0.1% increase.

Industrial production climbed 0.1% in May from April. Economists had been looking for a 0.2% month-to-month increase.

A little context, please. The bigger than expected increase in headline inflation in May is actually a slowdown from the 0.4% month-to-month gain recorded in April. The big factor in the jump in core inflation in May came from a 1% increase in the price of new and used vehicles. That’s temporary, I believe. Supply chain disruptions from the Japanese earthquake and tsunami resulted in a shortage of cars in May and that led to an uptick in prices.

Year-to-year core inflation, the number the Federal Reserve watches, is still only 1.5%. That’s well below the Fed’s target of 2% to 2.5% core inflation. Nothing in the inflation numbers, in other words, to make the Fed change its policy of keeping interest rates low for an extended period.

The small 0.1% increase in industrial production actually qualifies as an improvement from the 0% growth in April. Manufacturing production, a leading sector in the recovery to date, increased by 0.4% in May after dropping 0.5% in April. Factor out the slowdown in auto production and manufacturing output climbed 0.6% month to month in May.

The drop in the overall industrial production number came almost totally from a 2.8% decline in the utilities sector. Output from that sector has dropped in four of the last five months.

Here too the data seem to support the Fed’s view that the recent soft patch in the recovery is due to temporary factors. I don’t see anything in these numbers to suggest that U.S. economic growth, and especially growth in the manufacturing sector of the economy, is about to fall off a cliff.

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