New Inflation Numbers Likely to Ward Off Rate Hike

Consumer prices in the United States cooled last month, rising just 0.1% from April to May and extending the past year's steady easing of inflation. Still, inflation remains well above normal levels, and some measures of underlying price pressures remained high.

• Annual slowdown: Measured year over year, inflation slowed to just 4% in May—the lowest 12-month figure in more than two years and well below April’s 4.9% annual rise, per the AP. The pullback was driven by tumbling gas prices and smaller increases in grocery prices and other items.
• The Fed: Tuesday’s inflation figures arrive just as Federal Reserve officials begin a pivotal two-day meeting, and the numbers raised the odds that the central bank will leave interest rates alone after imposing 10 straight rate hikes dating back to March 2022, per CNBC. Dow futures rose in the immediate wake of the report's release.

• The Fed, II: The drop-off in overall inflation isn’t likely to convince the Fed that they’re close to curbing the high inflation that has gripped the nation for two years. Though it may skip a rate hike this week, look for the Fed to hint that it will resume raising rates as soon as July.
• Core prices: The Fed tends to focus more on “core” prices, which exclude volatile food and energy costs and generally provide a clearer view of inflation. And core prices remained high last month, rising 0.4% from April to May, the sixth straight month of increases at that level or higher. Compared with a year ago, core inflation slipped to 5.3% from 5.5%. That is still far above the Fed's target of 2%.
• The trend: Inflation is expected to take another big step down in the June figures that will be reported next month. Price growth could slide as low as 3.2% from a year earlier, according to some economists’ estimates. That would be significantly below inflation’s peak of 9.1% in June 2022, the highest level in four decades.

(More inflation stories.)