(Washington) U.S. inflation slowed in May for a second straight month, suggesting that the surge in prices that occurred earlier this year may have passed.
The trend, if it continues, could bring the Federal Reserve closer to lowering its key rate, which is at a 23-year high.
Consumer prices excluding volatile food and energy costs — the closely watched “core index” — rose 0.2% from April to May, the U.S. Labor Department said Wednesday. This is down from 0.3% the previous month and the smallest increase since last October.
Compared to the previous year, core prices rose 3.4%, less than last month’s 3.6% and the smallest increase in three years.
Federal Reserve officials scrutinize inflation data each month to gauge their progress in the “Fed’s” fight against rising prices. Even as overall inflation slows, basic necessities such as groceries, rent and health care are much more expensive than they were three years ago – a continuing source of public discontent and a political threat to society. re-election of President Joe Biden.
Wednesday’s report suggests consumers are starting to feel some relief after soaring prices over the past three years. Grocery costs remained unchanged, on average, from April to May, after actually decreasing 0.2% the month before. Food prices have only risen 1% in the past 12 months, although they are still up about 20% from three years ago.
Average gasoline prices fell 3.6% nationally between April and May, although they were 2.2% higher than they were a year earlier. These declines continued, averaging US$3.45 per gallon on Wednesday, down 17 cents from the previous month. Americans didn’t drive as much during the long “Memorial Day” holiday as in previous years, which reduced demand – and oil prices fell.
Headline inflation also slowed last month, with consumer prices remaining unchanged from April to May. Compared to the previous year, prices increased by 3.3%, less than the 3.6% increase recorded a month earlier.
“It’s certainly good news,” said Tom Porcelli, chief U.S. economist at PGIM Fixed Income. This shows that the inflation challenge in the United States is not as difficult as monetary policy makers believe. »
The Fed kept its key rate unchanged for almost a year, after quickly raising it in 2022 and 2023 to combat the worst inflationary surge in four decades. These higher rates have, in turn, pushed up the cost of mortgages, auto loans, credit cards and other forms of consumer and business borrowing. Although inflation is now well below its peak of 9.1% reached in mid-2022, it remains above the Fed’s target level.
In early May, Fed Chairman Jerome Powell said the central bank needed more confidence that inflation was returning to target before cutting its key rate. Several Fed officials have said in recent weeks that they need several consecutive months of falling inflation.
There are signs that inflation will continue to slow over the coming months. Americans, especially lower-income households, are cutting back on spending. Several major retail and restaurant chains, including Walmart, Target, Walgreen’s, McDonald’s and Burger King, responded by announcing price cuts and sales.
