Consumer Price Index reports a slight dip, raising questions about potential Federal Reserve rate cuts.
The Consumer Price Index (CPI), one of the most closely watched inflation metrics, showed a slight slowdown in May, suggesting that the price increases that have been a burden on the U.S. economy may be easing. The index rose by 3.3% over the past 12 months, a slight decrease from the 3.4% increase reported in April, which was also lower than economists’ expectations.
One of the more promising aspects of the report is the 0% change in inflation on a monthly basis, the lowest since July 2022. Additionally, when excluding volatile food and energy prices, the monthly increase was only 0.2%, the smallest rise since October. Excluding these categories, the CPI’s 12-month increase slowed to 3.4%, a slight improvement from the previous month’s 3.6%, marking the smallest rise since April 2021.
For services, such as medical, housing, and transportation, the prices excluding energy climbed by just 0.2%, showing less pressure in that category. While these figures are an improvement compared to the nearly 10% inflation seen two years ago, the CPI has remained stuck between 3% and 4% for nearly a year, indicating that inflation is not decreasing dramatically.
Economists are now watching the Federal Reserve’s next moves, as the recent CPI data could influence their decision on interest rates. Though the CPI slowdown offers a glimmer of hope for relief, the Fed is still expected to keep rates unchanged for now, given that inflation remains above their target level.
Olu Sonola, head of U.S. economic research at Fitch Ratings, praised the CPI report, noting that the core services index’s 0.2% increase was the lowest since September 2021, potentially boosting confidence in future price control efforts. However, while the chance of a rate cut in July seems unlikely, the window for a reduction later in the year remains open.
Economist Paul Krugman expressed optimism, saying that inflation has been largely defeated, but others caution that the battle is not over. Bankrate Senior Economic Analyst Mark Hamrick warned that while May’s CPI shows improvement, the war against inflation is still ongoing, as inflation remains above desirable levels.