The prices of goods and services in the US rose 4% over the last year, showing a cooling of prices as the Federal Reserve considers pausing interest rate hikes this week.
Inflation year-over-year in May was down 0.9% compared with April and is the lowest rate since April 2021, when prices started to climb, according to the latest consumer price index (CPI) data, which measures the prices of a basket of goods and services. The slowing of price increases can largely be attributed to energy prices, which were soaring this time last year because of Russia’s invasion of Ukraine.
Energy prices went down 11.7% over the last year.
The price of housing was the largest contributor to the overall price increases, with an 8% increase over the last year.
Though this is the eleventh consecutive month that inflation has decreased, core inflation, which does not include the volatile energy and food sectors, still remains high at 5.3%. Core inflation has increased 0.4% each month since March. And the overall inflation rate remains double that of the Federal Reserve’s target goal of 2%.
Still, as the rise in prices begins to slow, officials at the Federal Reserve have hinted that they will pause their inflation rate hikes at their next meeting on 13 June and 14 June. The Fed has raised the interest rate 10 times since March 2022, bringing rates up from zero to 5% to 5.25%, the highest since 2007.
“Having come this far, we can afford to look at the data and the evolving outlook and make careful assessments,” Powell said during a speech last month, hinting at a pause in the Fed’s rate hike. “We face uncertainty about the lagged effects of our tightening so far.”
Despite the decrease in inflation, the overall picture is still complicated for the Fed as the labor market has shown resilience, even in the face of interest rate hikes. In May, the jobs market added 339,000 jobs, far surpassing predictions. Fed officials have said even if they pause their rate hike, further increase could take place at later meetings.
On Monday, stocks rallied as investors became optimistic about the softening of inflation and a potential rate hike pause. The S&P 500 index closed on a 13-month high, while the Dow Jones industrial average and Nasdaq composite both rose Monday afternoon.
