Slowing Consumer Inflation May Sow Fed Doubt on Prices
A greater-than-expected deceleration in U.S. consumer-price inflation in May could give some pause to Federal Reserve officials as they consider further interest-rate increases, Labor Department figures showed June 14.
Highlights of CPI
• Consumer-price index fell 0.1% month over month (estimated to be unchanged) following 0.2% rise in prior month.
• CPI up 1.9% year over year (estimated 2% increase) after 2.2%.
• Excluding volatile food and fuel, costs rose 0.1% month over month (estimated 0.2% increase) after 0.1% rise; up 1.7% year over year, lowest since May 2015 (estimated 1.9% increase).
Key Takeaways
While the data can be volatile month to month, often depending on energy and food prices, the underlying measure of inflation has slowed to 1.7% from 2.3% in January, raising the risk that price gains will drift further from the Federal Reserve’s target.
The decrease in the headline index was led by energy — including the biggest drop in gasoline since February 2016 — though prices also fell in apparel, airfares, communication and medical-care services.
Fed officials primarily judge their progress on meeting their target via a separate index, which has fallen below 2% since meeting that objective in February for the first time in almost five years.
Central bankers conclude a two-day meeting in Washington later June 14, where they are widely expected to raise the benchmark interest rate for the second time this year amid a tightening labor market. Additional hikes, however, may be contingent on a rebound in underlying inflation.
Economist Views
“While softer inflation boosts real earnings growth, it also implies more slack in the economy, providing the Fed space to move even more slowly,” Neil Dutta, head of U.S. economics at Renaissance Macro Research in New York, said in a note.
Other Details
• Energy prices fell 2.7% from April; food costs rose 0.2%.
• Shelter costs advanced 0.2% after climbing 0.3% in April.
• Price measure for wireless services, which had dragged down CPI in recent months, fell 0.1%; had negligible effect on overall drop.
• Hourly earnings adjusted for inflation rose 0.6% from May 2016, after a 0.3% annual gain, a separate report from the Labor Department showed.
•Monthly drop in headline CPI is second decline in three months.
•Three-month annualized change in core CPI is zero.
•CPI is one of three monthly price gauges from Labor Department; wholesale prices were unchanged in May as energy and food costs declined, data showed June 13; import price figures are due June 15.
