By Cate Chapman, Editor at LinkedIn News
Consumer price inflation fell to an annual rate of 4% in May, its slowest pace since March 2021. The Labor Department also reported on Tuesday that “core inflation,” a measure stripping out volatile food and energy costs, rose 0.4% from April, the same pace as in the prior two months. Still, analysts say the report gives the Federal Reserve room to skip an interest rate increase when it meets on Wednesday. While inflation is double the level targeted by the central bank, it has slowed by more than half since hitting a 9.1% peak in June.
- Americans’ near-term optimism about inflation’s trajectory is the highest it’s been in two years, based on a Federal Reserve Bank of New York survey.
- The Fed has hiked rates 10 times over the past 15 months in a bid to curb soaring prices, pushing borrowing costs to 5% — the highest since 2007.
- May’s report showed overall annual inflation falling slightly further than the 4.1% expected by economists, from 4.9% in April.
- Rising costs for housing, used vehicles and food continued to drive price increases last month, while energy prices fell 3.6% from April.
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Egg prices just plunged. Use our tool to search for the inflation figures of almost 200 items
marketwatch.com •
From cookies to rice, televisions and airplane tickets, the CPI released on Tuesday shows the prices consumers are paying for dozens of products.
https://www.marketwatch.com/story/egg-prices-just-plunged-use-our-tool-to-search-for-the-inflation-figures-of-almost-200-items-d511f832
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TL;DR Good news on US inflation in May. We’re not where we need to be yet, but we’re clearly moving in the right direction.
1/ We’re seeing clearer and clearer signs of US inflation coming down, reviving hopes of a soft landing for the US economy (low inflation, low unemployment). Such a soft landing isn’t a base case for the economic outlook, but the window is still open. (To borrow a Poker concept, maybe we’ll draw to an inside straight.)
2/ The data: we’re still seeing firmness in the core consumer price index (CPI), but other trend measures like median and trimmed mean CPI (which have experienced less noise over the past 2 years) are clearly headed downward. Median CPI was 4.7% annualized M/M (the lowest since August 2021), and over the past 3 months at 4.8% annualized (lowest since September 2021). The trimmed mean CPI was 2.8% annualized M/M (lowest since February 2021), and over the past 3 months at 3.2% annualized (lowest since March 2021).
3/ It’s still way too early to declare victory – data has ups and downs, and the underlying trend in inflation is still above the Fed’s 2 percent target. That said… if the trimmed mean data “sticks” and turns out to be an accurate barometer of the underlying trend, it’s in the range that could justify some mild easing by the Fed later this year.
4/ The headline CPI data gets some attention (and generally looks better than all the trend measures I discuss above), but caveat emptor – it tends to be noisier and exaggerates fluctuations in underlying price pressures. It ran at 2.2% 3-month annualized in May, matching the lowest rate since June 2020.
5/ Last point: the rent components of inflation tend to be laggy. Folks who follow the underlying data predict more disinflation to come.