Inflation in the US eased in May, supporting the case for Federal Reserve officials to halt their streak of interest rate hikes this week.
The consumer price index and/or the core CPI, which excludes food and energy, slows year after year, highlighting the decline in inflation since it peaked last year. At 4%, the year-over-year figure was at its lowest level since March 2021, according to the Bureau of Labor Statistics.
The core CPI rose 0.4% for the third consecutive month, in line with estimates. The headline CPI, however, rose a modest 0.1%, helped by lower fuel prices. The numbers come before the Fed makes a decision on whether to raise interest rates for the 11th consecutive meeting. or stop and further evaluate the economic situation. Several lawmakers, including Chairman Jerome Powell, have signaled they want to skip the hike at the June 13–14 meeting.
“This is a good impression in terms of indicators that we are likely to see the core CPI weaken materially starting next month,” said Omair Sharif, president of Inflation Insights LLC. “The way things are going, I suspect we will see a soft core that will reduce the chances of a rally in July.”
The details show homes, used cars, and motor vehicle insurance all contributing to the monthly increase. while fares and household items decreased. Housing costs, which are the most important part of services and represent almost a third of the total CPI index, accelerated by 0.6%, strengthened by the increase in the cost of hotel stays and still high rents.
The gasoline price index fell 5.6%, and grocery prices rose after falling for two consecutive months. Excluding housing and energy, service prices increased by 0.2% compared to the previous month.
The outlook for interest rates remains unclear, but the new data should help Fed officials make a decision. Between now and the central bank’s meeting in July, policymakers will have access to a range of new consumer spending figures, hiring, PCE inflation (price of personal consumption expenditures), and another CPI report.