US consumer prices rise slowly; Core inflation is sticky

  • Consumer prices rose 0.1% in May; An increase of 4.0% year-on-year
  • Core CPI rises 0.4%; An increase of 5.3% year-on-year

WASHINGTON, June 13 (Reuters) – U.S. 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 Federal Reserve will keep interest rates unchanged. When Mercury assumes a hawk posture.

A smaller-than-expected rise in the consumer price index reported by the Labor Department on Tuesday led to a decline in the costs of energy goods and services, including gasoline and electricity. But rents remained sticky and prices for used cars and trucks soared. The statement came as central bank officials began a two-day policy meeting.

“The moderate slowdown gives the Fed room to pause its rate hikes this week,” said Kathy Postjanczyk, chief economist at Nationwide in New York. “However, if economic data continues to surprise to the upside and inflation remains sticky, the door remains open for another rate hike in the months after July.”

CPI rose 0.1% last month after gaining 0.4% in April. Petrol prices fell 5.6%, while electricity prices fell for the third month in a row. Utility gas prices are also low.

But food prices rose 0.2%, unchanged for two consecutive months, as prices of fruits and vegetables, non-alcoholic beverages and other food items rose. However, meat and fish were cheaper, while egg prices fell 13.8%, the most since January 1951. Dining out is expensive.

In the 12 months to May, the CPI rose 4.0%. This was the smallest year-on-year increase since March 2021 and followed a 4.9% rise in April.

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Reuters Graphics

Annual CPI rose to 9.1% in June 2022, the biggest increase since November 1981, and is slowing as last year’s big rises are factored out.

Economists polled by Reuters had forecast CPI to rise 0.2% last month and 4.1% on a year-over-year basis.

President Joe Biden welcomed moderation in prices. “While there is still work to be done … I have never been more confident that our best days are ahead of us,” Biden said in a statement.

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

Gradual recession

This month’s data showed a resilient labor market, with nonfarm payrolls rising solidly in May. The unemployment rate rose to a seven-month high of 3.7%, down from a 53-year low of 3.4% in April.

A resident buys strawberries at a local market in San Francisco, California, on July 13, 2022. REUTERS/Carlos Barria

Economists believe that gradual inflation and a labor market slowdown leave room for the central bank to avoid raising interest rates on Wednesday for the first time since March 2022.

The central bank, which has raised its policy rate by 500 basis points in this tightening cycle, is expected to open the door to further rate hikes.

Reuters Graphics

Economists argue that the central bank should hold off on further rate hikes while it assesses the impact of measures taken so far to cool demand.

Overall inflation is slowing, driven by energy and food costs. Food prices have fallen back to levels seen before Russia’s invasion of Ukraine in February 2022. Commodity prices fell 0.2% in May after rising 0.6% the previous month. But inflation is proving sticky despite these volatile categories, and is well above the central bank’s 2% target.

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The so-called core CPI rose 0.4% in May, the third straight month of rises by the same margin. Prices of services rose 0.3% after falling 0.2%.

Owners’ equivalent rent (OER), a measure of how much homeowners pay in rent or earn from renting out their property, rose 0.5% for the third month in a row. But independent measures show rents on a downward trend, with the rental vacancy rate rising to a two-year high in the first quarter, and expect a slowdown this year. Rent measures in the CPI lag independent measures by several months.

Airfare decreased by 3.0%. Services excluding energy rose 0.4%, in line with April’s gain.

Prices of core services outside housing rose 0.2% after rising 0.1% in April, according to economists’ calculations. The so-called super core is monitored by policymakers, although they place more emphasis on the relative measure of personal consumption expenditures in price index data.

Used cars and trucks rose 4.4% after advancing by the same range in April. The increase, reflecting the delayed impact of auction prices in winter and early spring, contributed to core commodity prices rising 0.6% for the second consecutive month.

But home furnishing fell 0.6%, the first decline in nearly two years and the biggest decline since August 2009. However, beyond May, overall core inflation is expected to ease, with declines in rents and used car prices resuming. and trucks.

In the 12 months to May, core CPI rose 5.3%. This is the smallest increase since November 2021 and follows a 5.5% increase in April.

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“We expect a very significant decline in core prices in the coming months,” said Michael Pugliese, senior economist at Wells Fargo in New York. “An improvement in direction should not be confused with completion. There is a lot of ground to cover in the inflationary struggle, which should keep the Fed from cutting rates until 2024.”

Report by Lucia Muticani; Editing by Chisu Nomiyama, Paul Shimao and Andrea Ricci

Our Standards: Thomson Reuters Trust Principles.

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