U.S. headline CPI fell 0.1% month-over-month, which was lower than expectations for unchanged month-over-month growth. Headline CPI was up 1.9% year-over-year as of May. Core CPI was up 0.1% in May, also lower than economists’ estimates, and core CPI year-over-year growth decelerated to 1.7%.
Year-over-year headline CPI growth has fallen for three consecutive months after peaking in February at 2.7%. Decreased energy prices have contributed to the recent drop in overall prices. Year-over-year core CPI growth has fallen for four consecutive months and has received attention more recently for running below 2%. The pricing war in the providers of wireless phone services has been a headwind to core inflation; however, we believe that telecom price moves are likely be temporary noise relative to the underlying inflation trend.
Decreased oil prices continued to weigh on headline inflation as the energy index fell 2.7% in May, which was driven by a 6.4% drop in the gasoline index. Energy prices are up 5.4% year-over-year however, due to strong growth in late-2016. Food prices slightly offset decreased energy prices with 0.2% growth in May, which is the fifth consecutive month of food price growth. Food prices are now up 0.9% year-over-year having rebounded from a deflationary state in 2016.
For core inflation, wireless telephone services have also been a significant drag on year-over-year core CPI growth as wireless telephone service prices are down 12.5% year-over-year, which detracted 0.2 percentage points from year-over-year core inflation. Lower prices in this area are primarily due to a price war between major telecom companies. Used car prices have also been falling steadily over the past five months. The 4.3% year-over-year decline in used car prices detracted 0.1 percentage point from year-over-year core CPI growth.