Consumer price inflation saw a big slowdown in May thanks to stable food prices and dropping energy prices, but core inflation stayed hot. May’s 4% annual rise in consumer prices is the lowest headline number since March 2021.
The good news
The Bureau of Labor Statistics numbers out Tuesday morning, June 13, came in slightly lower than expected. May’s 4% annual rise is down significantly from April’s 4.9% pace. Headline inflation has fallen for 11 straight months since June 2022’s 9% peak.
Prices for the month rose just 0.1% overall, down from April’s 0.4% rise.
The not-so-good news
Core inflation, however, is running much hotter. That’s the number that strips out more volatile food and energy prices and is more closely watched by economists and the Federal Reserve.
Core prices rose 5.3% on the year in May, just barely down from April’s 5.5% annual pace. Prices rose 0.4% for the month, the same as April and March.
Shelter is the biggest culprit of core inflation, BLS said. The index is up 8% on the year and 0.6% on the month, accounting for more than 60% of the total core increase.
Rising used car prices also fueled the rise, up 4.4% on the month, though the index has fallen 4.2% on the year. The rise in motor vehicle insurance is also statistically significant, up 17.1% on the year.
What’s next
The Federal Reserve kicked off its 2-day policy meeting on Tuesday, the same day as the CPI release. The majority of economists are expecting the Fed to put a pause to rate hikes in June, the first pause since the rate hike campaign began.
The Federal Reserve prefers consulting the personal consumption expenditures index over the consumer price index because the former takes into account changes in buying behavior. For instance, when prices rise, people often turn to cheaper alternatives. PCE is better at capturing those real-world changes.
That said, the next available data from PCE will not be released until June 30, so the most recent inflation data the Fed has to consult is the latest CPI numbers and Wednesday’s producer price release.
