May Inflation Drops to 4% Year-over-Year Increase, Signaling Inflation May Be Cooling
The U.S. Bureau of Labor Statistics (BLS) reported that the consumer price index (CPI) rose 4% year over year in May, a significant decline from 4.9% in April. This is the lowest annual pace since 2021 and slightly below economists’ expectations of a 4.1% increase, according to Refinitiv, global provider of financial market data and infrastructure. The latest reading marked inflation’s deceleration for the 11th consecutive month, an encouraging sign for Americans and the Federal Reserve (Fed).
“We expect a more noticeable deceleration in core prices in the coming months. That said, directional progress should not be confused with mission accomplished.”
-Michael Pugliese, Wells Fargo senior economist
This time last year, the CPI was more than double the current rate at 8.6%. However, while inflation cooled in May, climbing 0.1% compared with April, inflation still has held well above the Fed’s 2% annual target. Overall inflation is decelerating due to drops in energy and food costs, but there were notable increases in used cars and trucks as well as motor vehicle insurance. However, food commodity prices are returning to the lowest levels since February 2022.
Shelter was the largest contributor to the monthly all-items increase. Shelter costs are still climbing, increasing 0.6% over the month after rising 0.4% in April. This is noteworthy because home prices have significantly contributed to rising inflation.
Despite economic strains, the job market in the United States remains unusually strong, adding 339,000 jobs last month. However, the unemployment rate rose from 3.4% in April to a seven-month high of 3.7% in May. Although wages and prices tend to move together, many analysts noted that they don’t believe wages are a principal driver of inflation.
What’s Next?
May’s consumer prices rose at the slowest annual pace in over two years. This decline may be enough for the Fed to consider holding interest rates steady. However, many economists continue to predict that a mild recession will hit the U.S. economy later this year.
Individuals should continue to monitor the economy and associated inflation trends, adjusting their financial habits accordingly. Check with your manager for financial and mental wellness benefits and related resources.
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