US consumer price increases slow; underlying inflation sticky

WASHINGTON, June 13 (BNA): US consumer prices barely rose in May and the annual increase in inflation was the smallest in more than two years, although underlying price pressures remained strong, supporting the view that the Fed will keep interest rates below changing. Wed with the adoption of a hard line.

The smaller-than-expected rise in the Consumer Price Index, reported by the Labor Department on Tuesday, reflected lower costs for energy products and services, including gasoline and electricity. But rents have remained steady and prices for used cars and trucks have increased. The report was published as Federal Reserve officials began a two-day policy meeting, Reuters reported.

“A moderate slowdown provides room for the Federal Reserve to hold off on its interest rate increases this week,” said Kathy Bostancic, chief economist at Nationwide in New York. “However, if economic data continues to surprise to the upside and inflation holds steady, the door is open for another rate hike in the coming months, as early as July.”

The Consumer Price Index rose 0.1% last month after rising 0.4% in April. Gasoline prices fell 5.6%, while electricity fell for the third month in a row. The cost of utility gas is also lower.

However, food prices rose 0.2% after remaining unchanged for two consecutive months as prices of fruits, vegetables, non-alcoholic beverages and other food products rose. But meat and fish were cheaper, while eggs fell 13.8%, the highest since January 1951.

In the twelve months through May, the CPI rose 4.0%. This was the smallest year-on-year increase since March 2021 and was followed by a 4.9% rise in April.

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The annual consumer price index peaked at 9.1% in June 2022, the largest increase since November 1981, and is declining as last year’s surge falls behind the accounts.

Economists polled by Reuters had expected the consumer price index to rise 0.2 percent last month and gain 4.1 percent year-on-year.

President Joe Biden welcomed price moderation. “While there is more work to be done… I have never been more optimistic that our best days lie ahead,” Biden said in a statement.

Stocks rose on Wall Street, with the S&P 500 and Nasdaq indexes hitting one-year highs. The dollar fell against a basket of currencies. US Treasury rates rose after the data.

Data this month showed resilience in the labor market, with non-farm payrolls increasing strongly in May. While the unemployment rate rose to a seven-month high of 3.7%, that was from a 53-year low of 3.4% in April.

Economists believe gradual inflation and a slowing labor market give the Federal Reserve leeway to hike interest rates on Wednesday for the first time since March 2022 when the US central bank embarked on its fastest monetary tightening campaign in more than 40 years.

The Fed, which raised interest rates by 500 basis points in this tightening cycle, is expected to leave the door open for further rate increases.

Economists argue that the Fed should hold off on further rate hikes while it assesses the impact of the steps it has taken so far to moderate demand.

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