The numbers: Consumer prices rose a scant 0.1% in May — held in check by cheaper gas — and could cement a decision by the Federal Reserve to “skip” an increase in interest rates this week.
The small rise in consumer prices matched the forecast of economists polled by the Wall Street Journal.
The Fed is meeting today and tomorrow to determine its next step in its fight against inflation. The central bank is widely expected to leave a key U.S. interest rate unchanged at the end of its two-day meeting.
The yearly rate of inflation slowed to 4% from 4.9%, marking the lowest level since March 2021. Grocery and gas prices have been on the wane after helping drive up inflation last year.
Yet the so-called core rate of inflation that omits food and energy rose a stiffer 0.4% for the third month in a row. Wall Street had forecast a 0.4% gain.
The Fed views the core rate as a better predictor of inflation trends. The increase in the core rate over the past 12 months slipped to 5.3% from 5.5%, the smallest gain since the fall of 2021.
These prices have fallen more slowly than the broader CPI, however, and suggest the fight against inflation is far from over.
Stock rose after the report. Treasury yields fell slightly.
Big picture: The doggedly high rate of inflation is far from the Fed’s 2% target and senior officials think it could take a few years to reach its goal.
The big question for the Fed is whether to raise interest rates again.
The Fed has jacked up a key short-term rate by 5 percentage points since the spring of 2022 from near zero. Now it wants to see how higher borrowing costs affect inflation and economic growth. That’s why many senior Fed officials appear to prefer to skip a rate hike this week.
If inflation doesn’t subside more rapidly, however, the Fed might be forced to raise rates again and boost the odds of recession.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
were set to open higher in Tuesday trades. The yield on the 10-year Treasury note
TMUBMUSD10Y,
fell slightly to 3.7%.
This post was originally published on Market Watch
