Reuters file photo
US inflation slowed in May, supporting the case for Federal Reserve officials to pause their run of interest-rate hikes this week.
Both the consumer price index and the core CPI - which excludes food and energy - decelerated on an annual basis, highlighting inflation’s descent since peaking last year.
At 4%, year-over-year inflation is now at its lowest level since March 2021, according to data out Tuesday from the Bureau of Labor Statistics.
That said, a key gauge of prices closely watched by the Fed continued to rise at a concerning pace. The core CPI rose 0.4% for a third straight month, in line with estimates. The overall CPI, however, increased a smaller 0.1%, aided by lower gasoline prices.
Here are some of the top-line figures in the report:
The figures come just a day before the Fed is set to make a decision on whether to raise interest rates for an 11th-straight meeting or to pause and further assess economic conditions.
Several policymakers, including Chair Jerome Powell, have signaled they prefer to skip a rate hike at the June 13-14 meeting, while still leaving the door open to future tightening if needed.
Economists generally agree the central bank will leave rates unchanged Wednesday, but the next CPI report due in July will play a key role in determining what the Fed will do at that month’s meeting.
"This is a pretty good print in terms of signaling that we are likely to see the core CPI soften materially starting next month,” Omair Sharif, president of Inflation Insights LLC, said in a note.
"The way things are going now, I suspect we’ll see a soft core that will tamp down odds of a July hike.”
The S&P 500 opened higher and Treasury yields fell as traders marked down the probability of a rate hike this week.
The details showed shelter, used cars and motor vehicle insurance all contributed to the monthly advance. Meantime, airfares and household furnishings declined.
Excluding housing and energy, service prices climbed 0.2% from a month earlier, according to Bloomberg calculations, which is more consistent with pre-pandemic trends. The metric was up 4.6% from a year earlier, extending a decline since peaking late last year.
While Powell and his colleagues have stressed the importance of looking at such a metric when assessing the nation’s inflation trajectory, they compute it based on a separate index.
The two gauges can diverge significantly, like in April when the CPI-based figure softened to a nine-month low whereas the other - based on the personal consumption expenditures price index - accelerated. The May PCE price index will be released later this month.
