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May 2024 Inflation Retreats Slightly: A Mixed Bag of Price Trends
The consumer price index (CPI) registered a 3.3% year-on-year increase in May 2024, a deceleration from the 3.4% rate in April, as reported by the U.S. Labor Department. This moderation in inflation was driven by easing price pressures in certain sectors, such as consumer staples. For instance, gasoline prices dropped 3.6% month-on-month, while grocery prices remained stagnant, recording zero monthly inflation.
However, the housing sector continued to exhibit stubbornly high inflation, with shelter costs increasing by 5.4% year-on-year. Economists view this trend as a potential concern, as housing inflation has a significant impact on the overall CPI due to its substantial weight in consumer spending.
The latest CPI data is likely to be seen as a positive sign for Federal Reserve officials, who may interpret it as evidence that they can soon consider reducing interest rates. The central bank is expected to maintain its current borrowing costs at the conclusion of its policy meeting later in May.
Despite the downward trend in some sectors, economists emphasize that the fight against inflation is not yet over. 'This report reinforces the disinflationary narrative, that inflation is almost back in the bottle,' said Mark Zandi, chief economist at Moody's Analytics.
The CPI measures price changes across various sectors, including food, energy, and services. The April inflation reading, which was 3.4%, marked a significant decline from its pandemic-era peak of 9.1% in 2022, the highest level since 1981. However, it remains above the policymakers' long-term target of around 2%.
The Federal Reserve closely monitors inflation data to guide its interest rate policy. Economists anticipate that the central bank will leave borrowing costs unchanged at the current level, which is at historically high levels, at the conclusion of its policy meeting later in May.
However, the recent inflation data supports the notion of a potential interest-rate cut in the coming months, assuming the trend does not change, economists said. 'We still need several more months of this, but the fundamentals are encouraging,' said Paul Ashworth, chief North America economist at Capital Economics.
The monthly CPI reading was unchanged at 0% in May, down from 0.3% in April and 0.4% in March. The decline was primarily attributed to lower gasoline prices. U.S. gasoline prices dropped 3.6% month-on-month in May, following three consecutive monthly increases. Consumers paid an average of $3.58 per gallon at the end of May, and prices have continued to decline since then, averaging $3.43 per gallon as of June 10.
Food inflation has also eased, with monthly 'food at home' inflation remaining at 0% for the past four months. This trend is largely due to falling prices for agricultural commodities and easing pressures in the labor market, economists said.
Despite the progress in some sectors, housing inflation remains a concern, with shelter inflation falling at a slower pace than expected. Economists expect it to continue to decline, given prevailing real estate trends, but acknowledge that it will likely take some time for this cycle to play out.
Other categories with notable increases over the past year include motor vehicle insurance (up 20.3%), medical care (+3.1%), recreation (+1.3%), and personal care (+2.9%). Meanwhile, some categories have seen prices pull back, such as physical goods prices (excluding food and energy commodities), which declined by 1.7% in the past year.
Services inflation has been slower moving, as the goods side of the inflation story has largely returned to normal. The services sector is more sensitive to inflationary pressures in the labor market, such as strong wage growth. Record-high demand for workers during the pandemic-era economy reopening pushed wage growth to its highest level in decades, but the labor market has since cooled, and wage growth has declined, although it remains above its pre-pandemic level.
Average hourly earnings for private-sector workers grew at a 4.1% annual pace in May, down from a peak near 6% in March 2022. 'From a wage inflation perspective, we're still too high,' said Joe Seydl, senior markets economist at J.P. Morgan Private Bank.
Original Article: https://www.cnbc.com/2024/06/12/cpi-inflation-may-2024-in-one-chart.html
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