US inflation slows, supporting pause in rate hikes

Federal Reserve

US inflation slowed in May, supporting the case for Federal Reserve officials looking to pause interest-rate hikes this week following more than a year of increases.

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.

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 signalled 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 forecasters and policymakers disagree on whether the economy will warrant another rate hike at next month’s gathering.

Treasury yields fell following the report as traders marked down the probability of a rate hike this week. S&P 500 futures rose.

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. The metric was up 4.6% from a year earlier, extending a decline since peaking late last year.


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