Just hours before the Federal Reserve’s latest interest rate decision was released, new inflation data showed that price increases slowed significantly in May.
The new report is a sign that inflation is cooling again after proving stubborn at the start of 2024, and it could help inform Fed officials as they set a future interest rate path. Policymakers had welcomed a rapid slowdown in price increases in 2023, but have become more cautious after inflation stalled earlier this year. The latest data could help restore their belief that inflation is on track to return to the central bank’s target.
Here’s what you should know:
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Overall inflation cooled: The consumer price index for May rose 3.3 percent from a year ago, below the 3.4 percent forecast by economists and below April’s figure. And if you just compare prices in May with the previous month, they didn’t go up at all.
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“Core inflation” also slowed: A closely watched measure that strips out volatile food and fuel prices to give a sense of the underlying trend rose 3.4 percent from a year earlier, down from 3.6 percent the previous month and slower than economists had forecast. That was the slowest increase since April 2021.
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This could be a big deal for the Fed. Central bankers will release their interest rate decision at 2 p.m. and while they are widely expected to leave interest rates unchanged this month, the new inflation data could factor into their forecasts for the rest of the year. Policymakers will release their first economic forecasts since March along with their policy statement. This report could help pave the way for earlier rate cuts.
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What economists say: “That’s great, but it’s only a month,” said Michael Feroli, chief U.S. economist at JP Morgan. He said it was unlikely the Fed would cut interest rates this summer based on this inflation report alone. He expects a rate cut in November, but after Wednesday’s report he could see a case for September. “This definitely fits the ‘bumps in the road’ narrative,” he said, explaining that the persistence of inflation in early 2024 now appears to be less of a permanent problem.
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Inflation has fallen sharply from its peak. While today’s inflation rate is faster than the pre-pandemic 2 percent, it is much slower than the 9.1 percent that headline inflation reached in 2022. The Fed aims for inflation of 2 percent, but defines this benchmark using the personal consumption expenditure index. Data from the CPI release is included in this report, which is published with a longer delay – only on June 28 of this month.
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Where does the cooling come from? Car insurance price increases surprised economists as they slowed sharply last month since April and hotel and airfares were cheaper. Rent increases remain stubborn, but forecasters expect them to slow soon. Clothing prices fell monthly and food inflation was moderate.
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2024-06-12 16:50:53
www.nytimes.com
