The inflation rate fell in May to the slowest rate in more than two years, but core inflation remained an issue as the Federal Reserve opened its two-day meeting Tuesday.
According to the latest report released by the U.S. Bureau of Labor Statistics, the consumer price index (CPI) rose just 0.1% in May on a seasonally adjusted basis, down from 0.4% in April.
In addition, over the past 12 months, the CPI all-items index rose 4% before seasonal adjustment, down from 4.9% in April and below the 4.1% increase expected by analysts.
May’s 4% annual increase is the smallest since the 12-month period that ended in March 2021, though it remains stubbornly above the Fed’s target inflation rate of 2%. Still, the rate is down from its peak of 9.1% in June 2022 and has fallen for 11 straight months..
The all-items less food and energy index, considered the core inflation index, rose 5.3% over the past 12 months, matching analysts’ expectations. The energy index decreased 11.7% for the 12 months ended in May, while the food index increased 6.7% over the last year.
The index for shelter increased monthly by .6% and 8% on an annual basis. The food index increased 0.2% in May after being unchanged the previous two months. The energy index, in contrast, declined 3.6% in May from April as the major energy component indexes fell.
On a monthly basis, the index for all items less food and energy rose 0.4% in May, as it did in both April and March. Indexes that increased in May from the previous month included shelter, used cars and trucks, motor vehicle insurance, apparel, and personal care. The index for household furnishings and operations and the index for airline fares were among those that decreased over the month.
With the latest CPI report, Fed watchers say they expect the Federal Open Market Committee (FOMC) to pause its string of increases to the target range for the federal funds rate. Since March 2022, the FOMC has increased the rate 10 times in 14 months, including a 25-basis-point increase following its May meeting. Increasing the rate has been the primary tool used by the Fed in its fight against inflation.
While a pause in rate hikes is expected after this week’s meeting, it is unclear what the FOMC will do for the rest of the year, with many analysts saying another 25-basis-point increase is possible in July.
