Inflation Shock Continues to Abate

The pandemic was a shock. It caused lots of aftershocks including an inflation problem which was widely expected to be transitory, but has seemed to be more persistent. It may turn out to be transitory after all according to today's May PPI report.

We usually focus on the inflation rate of the final demand PPI for personal consumption (chart). It tends to coincide with the inflation rates for the CPI and PCED. They've diverged recently as follows: PPI (1.4% in May), CPI (4.0% in May), and PCED (4.4% in April). That's mostly because the PPI does not include rent, which has been persistently high, but seems to be moderating as we observed recently.