US consumer inflation eases for 11th straight month

Washington – Consumer inflation in the United States cooled for an 11th straight month on an annual basis in May, the Labor Department said Tuesday, in an encouraging sign for policymakers.

Federal Reserve officials are set to begin a two-day policy meeting on Tuesday and the latest figures could allow room for a pause in interest rate hikes at the end of their gathering.

While the US central bank has lifted the benchmark lending rate 10 times in a row since early last year to rein in inflation, it is widely anticipated to hold off this week on signs of cooling in the world’s biggest economy.

Government figures released Tuesday show that the consumer price index (CPI), a key gauge of inflation, jumped 4.0 percent from a year ago in May, in line with analyst expectations and down from 4.9 percent in April.

This brings it to the lowest level in around two years, and less than half the peak rate of 9.1 percent in mid-2022.

“Today’s report is good news for hard working families,” President Joe Biden said in a statement. “It shows continued progress tackling inflation at the same time that unemployment remains at historic lows.” 

– Cooling prices –

Analysts however caution that Fed policymakers are looking for a more certain trend of cooling growth before they end their cycle of rate hikes.

On a monthly basis, CPI rose 0.1 percent in May, decelerating from 0.4 percent in April, the Labor Department said.

Excluding the volatile food and energy components, consumer inflation was up 5.3 percent over the last 12 months.

“The index for shelter was the largest contributor to the monthly all items increase, followed by an increase in the index for used cars and trucks,” the Labor Department said.

But while there was a “leap” in used vehicle prices last month, this was probably the last of a response to an earlier surge in auction prices, said Ian Shepherdson of Pantheon Macroeconomics.

“CPI used vehicle prices will fall over the summer, likely starting as soon as June,” he said in a note. He added that rent growth is set to slow as well.

Meanwhile, new vehicle prices dipped on a monthly basis, on improving supply and “softer demand in the face of tightening credit conditions,” he said.

– Room to pause –

“While inflation rates remain elevated, the moderate slowing provides the Fed room to pause its rate hikes,” said Nationwide chief economist Kathy Bostjancic in a note.

For now, halting further rate increases allows the Fed more time to assess the economic impact of its earlier actions, which came on top of recent pressures in the banking sector.

But when it comes to the future policy path, “incoming information on inflation, the labor market as well as considerations about credit conditions” will determine if the Fed is done raising rates, said Rubeela Farooqi of High Frequency Economics.

Oren Klachkin, lead US economist at Oxford Economics, cautioned that “a month’s worth of data won’t ease policymakers’ worries.” 

He told AFP there remains a risk of further Fed rate hikes in the second half of the year.