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A measure of prices that is closely tracked by the Federal Reserve suggests that inflation pressures in the U.S. economy are continuing to ease.<\/p>\n
Friday\u2019s Commerce Department report showed that consumer prices were flat from April to May, the mildest such performance in more than four years. Measured from a year earlier, prices rose 2.6% last month, slightly less than in April.<\/p>\n
Excluding volatile food and energy prices, so-called core inflation rose 0.1% from April to May, the smallest increase since the spring of 2020, when the pandemic erupted and shut down the economy. And compared with a year earlier, core prices were up 2.6% in May, the lowest increase in more than three years.<\/p>\n
Prices for physical goods actually fell 0.4% from April to May. Gasoline prices, for example, dropped 3.4%, furniture prices 1% and the prices of recreational goods and vehicles 1.6%. On the other hand, prices for services, which include items like restaurant meals and airline fares, ticked up 0.2%.<\/p>\n
Stocks rose on Wall Street Friday and headed for their fourth weekly gain following the release. The S&P 500 index rose 0.2% and is on track to notch a fourth straight weekly gain and another all-time high. The Nasdaq composite rose 0.2% and is also on track to set a record.<\/p>\n
The Dow Jones Industrial Average rose 93 points, or 0.2%, as of 11:10 a.m. Eastern.<\/p>\n
The latest figures will likely be welcomed by the Fed\u2019s policymakers, who have said they need to feel confident that inflation is slowing sustainably toward their 2% target before they\u2019d start cutting interest rates. Rate cuts by the Fed, which most economists think could start in September, would lead eventually to lower borrowing rates for consumers and businesses.<\/p>\n
\u201cIf the trend we saw this month continues consistently for another two months, the Fed may finally have the confidence necessary for a rate cut in September,\u201d Olu Sonola, head of U.S. economic research at Fitch Ratings, wrote in a research note.<\/p>\n
The Fed raised its benchmark rate 11 times<\/a> in 2022 and 2023 in its drive to curb the worst streak of inflation in four decades. Inflation did cool substantially from its peak in 2022. Still, average prices remain far above where they were before the pandemic, a source of frustration for many Americans and a potential threat to President Joe Biden\u2019s re-election bid.<\/p>\n During Thursday night\u2019s presidential debate, Donald Trump attacked Biden\u2019s record on inflation<\/a>. The presumptive Republican nominee asserted that Biden inherited low rates of inflation when he entered office in January 2021 but that prices \u201cblew up under his leadership.\u201d<\/p>\n While inflation was in fact ultra-low at the start of the Biden presidency, that was largely because the nation was still recovering from the brutal Covid recession, which flattened the economy. Once the economy began surging back to life with unexpected speed, causing severe shortages of goods and labor, inflation soared.<\/p>\n Friday\u2019s price figures added to signs that inflation pressures are continuing to ease, though more slowly than they did last year.<\/p>\n The Fed tends to favor the inflation gauge that the government issued Friday \u2014 the personal consumption expenditures price index \u2014 over the better-known consumer price index. The PCE index tries to account for changes in how people shop when inflation jumps. It can capture, for example, when consumers switch from pricey national brands to cheaper store brands.<\/p>\n Like the PCE index, the latest consumer price index<\/a> showed that inflation eased in May for a second straight month. It reinforced hopes that the acceleration of prices that occurred early this year has passed.<\/p>\n The much higher borrowing costs that followed the Fed\u2019s rate hikes, which sent its key rate to a 23-year high, were widely expected to tip the nation into recession. Instead, the economy has kept growing<\/a>, and employers have kept hiring<\/a>.<\/p>\n Lately, though, the economy\u2019s momentum has appeared to flag, with higher rates seeming to weaken the ability of some consumers to keep spending freely. On Thursday, the government reported that the economy expanded at a 1.4% annual pace<\/a> from January through March, the slowest quarterly growth since 2022. Consumer spending, the main engine of the economy, grew at a tepid 1.5% annual rate.<\/p>\n Friday\u2019s report also showed that consumer spending and incomes both picked up in May, encouraging signs for the economy. Adjusted for inflation, spending by consumers \u2014 the principal driver of the U.S. economy \u2014 rose 0.3% last month after having dropped 0.1% in April.<\/p>\n After-tax income, also adjusted for inflation, rose 0.5%. That was the biggest gain since September 2020.<\/p>\n<\/div>\nMeasures of price hikes<\/h2>\n
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