In May, US consumer prices experienced a minimal increase, marking the smallest annual inflation rise in over two years. Despite this, underlying price pressures persist, suggesting that the Federal Reserve may maintain the current interest rates while leaning towards a hawkish stance.
The Consumer Price Index (CPI), as reported by the Labor Department, saw a smaller-than-expected rise due to the decreasing costs of energy products and services, including gasoline and electricity. However, rental costs remained high, and the prices of used cars and trucks continued to rise. This report was released as Fed officials commenced a two-day policy meeting.
Kathy Bostjancic, chief economist at Nationwide in New York, stated, “The moderate slowing provides the Fed room to pause its rate hikes this week. However, if economic data continues to surprise to 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 by 0.1% last month following a 0.4% rise in April. Gasoline prices dropped by 5.6%, while electricity costs declined for the third consecutive month. Utility gas also became less expensive.
On the other hand, food prices rose by 0.2% after remaining unchanged for two consecutive months. The costs of fruits, vegetables, nonalcoholic beverages, and other food products increased. However, meat and fish became cheaper, while egg prices fell by 13.8%, marking the most significant decrease since January 1951. Dining out also became more expensive.
In the 12 months leading up to May, the CPI climbed by 4.0%. This is the smallest year-on-year increase since March 2021, following a 4.9% rise in April.
The annual CPI reached its peak at 9.1% in June 2022, the largest increase since November 1981, and is now subsiding as the large increases from last year are phased out.
Economists had predicted that the CPI would gain 0.2% last month and increase by 4.1% on a year-on-year basis.
President Joe Biden welcomed the moderation in prices, stating, “While there is more work to do … I’ve never been more optimistic that our best days are ahead of us.”
Following the release of this data, 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, and U.S. Treasury prices rose.