Inflation cooled to the lowest annual rate in two years in May, the Labor Department said on Tuesday.
The Consumer Price Index no, which measures changes in a range of goods and services, rose just 0.1% for the month, down 4% for the year. That 12-month increase was the smallest since March 2021, when inflation began to rise to a 41-year high.
Barring volatile food and energy prices, the picture is not so promising.
So-called core inflation rose 0.4% in the month and was up 5.3% from a year ago, indicating that while price pressures have eased somewhat, consumers are still under fire.
All of those numbers were right in line with Dow Jones consensus estimates.
A 3.6% decline in energy prices helped keep CPI gains in check for the month. Food prices rose only 0.2%.
However, a 0.6% increase in accommodation prices was the largest contributor to the increase in the all-goods or headline CPI reading. Housing-related expenses account for one-third of the index’s weight.
Elsewhere, prices for used vehicles rose 4.4%, while transportation services rose 0.8%, the same as in April.
Despite the expected importance of the Federal Reserve’s decision on interest rates at this week’s meeting, markets showed little reaction to the release. While Treasury yields fell sharply, stock market futures were slightly more positive.
Pricing in the Fed funds market changed significantly, as traders are now pricing in a nearly 100% chance that the central bank will not raise benchmark rates when its meeting ends on Wednesday.
“The encouraging trend in consumer prices will give the Fed some leeway to keep rates unchanged this month, and if the trend continues, the Fed won’t hike for the rest of the year,” said Jeffrey Roche, chief economist at LPL Financial.
A modest CPI reading was good news for workers. Average hourly earnings adjusted for inflation rose 0.3% in the month, the Bureau of Labor Statistics said. In a separate publication. On a year-on-year basis, real earnings rose 0.2% after running negative for much of inflation that started two years ago.
The Consumer Price Report has a growing discrepancy between core and headline numbers. Indexes for all items generally advance past food and energy levels, but not recently.
The year-over-year discrepancy between the two measures comes from rising gas prices at this time in 2022. Ultimately, pump prices will exceed $5 a gallon, a 19.7% drop in U.S. gasoline prices. Last year, Tuesday’s BLS report showed.
However, food prices increased by 6.7% over last year. Accommodation prices rose 8%, transport services rose 10.2%, although airfares fell 13.4% in the early days of the economic recovery.