Why Year-over-year Headline Inflation will Decline Sharply in May and June

CNBC's Carl Quintanilla posted this graph on Twitter this morning:

And he quoted Credit Suisse:

CREDIT SUISSE: “Our work indicates that YoY inflation is likely to fall to 4.2% in May, 3.2% in June .. this would represent one of the greatest drops experienced in a 2-month period over the past 70 years.”

This is very likely for both CPI and the PCE price index since energy and food prices soared in May and June 2022. As those data points are removed from the year-over-year calculation, the YoY change will decline sharply.

However, core inflation does not include food and energy, so we won't see as dramatic a decline in core CPI and core PCE.

Here is a table of the month-to-month price increases that will drop out of the year-over-year calculation in May and June.

This shows the large increases in May and June 2022 for CPI and the PCE price index.

It is likely that core CPI and core PCE will also decline year-over-year in May and June, but the decline will not be as sharp as for the headline inflation numbers.