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US consumer prices barely rose in May and the annual increase in inflation was the smallest in more than two years, though underlying price pressures remained strong, supporting the view that the Federal Reserve would keep interest rates unchanged on Wednesday while adopting a hawkish posture.
The smaller-than-expected rise in the Consumer Price Index, reported by the Labor Department on Tuesday, reflected decreases in the costs of energy products and services, including gasoline and electricity.
But rents remained sticky and prices of used cars and trucks rose further. The report was published as Fed officials began a two-day policy meeting.
“The moderate slowing provides the Fed room to pause its rate hikes this week,” said Kathy Bostjancic, chief economist at Nationwide in New York.
“However, if economic data continues to surprise the upside and inflation remains sticky, the door is open for another rate hike in the coming months, as soon as July.”
The CPI increased 0,1 percent last month after gaining 0,4 percent in April. Gasoline prices dropped 5,6 percent, while electricity declined for a third straight month. Utility gas also cost less.
But food prices rose 0,2 percent after being unchanged for two consecutive months as fruits and vegetables, nonalcoholic beverages and other food products became more expensive. Meat and fish, however, were cheaper, while egg prices fell 13,8 percent, the most since January 1951. It costs more to dine out.
In the 12 months through May, the CPI climbed 4 percent.
That was the smallest year-on-year increase since March 2021 and followed a 4,9 percent rise in April.
The annual CPI peaked at 9,1 percent in June 2022, which was the biggest increase since November 1981, and is subsiding as last year’s large rises drop out of the calculation.
Economists polled by Reuters had forecast the CPI would gain 0,2 percent last month and increase 4,1 percent on a year-on-year basis.
President Joe Biden welcomed the moderation in prices. “While there is more work to do … I’ve never been more optimistic that our best days are ahead of us,” Biden said in a statement.
Stocks on Wall Street rose, with the S&P 500 and Nasdaq indexes hitting fresh one-year highs.
The dollar fell against a basket of currencies. US Treasury prices rose after the data.
Gradual slowdown
Data this month showed a resilient labor market, with nonfarm payrolls increasing solidly in May. While the unemployment rate rose to a seven-month high of 3.7%, that was from a 53-year low of 3.4% in April. – Bloomberg
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