US data from May showed that inflation is decelerating — giving the Federal Reserve room for a long-anticipated pause in its rate-hiking campaign when it meets later this week.
The Consumer Price Index — a closely-monitored measure of inflation that tracks changes in the costs of everyday goods and services — rose 4% in May versus a year earlier, according to the US Bureau of Labor Statistics.
Last month’s annual increase was the smallest in more than two years, and comes the same month America’s resilient job market added a mammoth 339,000 jobs.
Stock futures rose ahead of the opening of Tuesday’s trading session.
Still, core CPI, which excludes volatile food and energy prices, rose a concerning 0.4% from a month ago, and 5.3% from one year ago.
Month over month, prices increased by 0.1%, according to the Bureau of Labor Statistics’ report released on Tuesday.
The rising costs shelter was the largest contributor to last month’s increase, followed by used cars and trucks, which increased 4.4%.
Among other indexes that rose in May was for motor vehicle insurance, which increased 2.0%, as well as apparel, personal care and education.
The index for food saw a 0.2% uptick in May after being unchanged in March and April. The food index rose 6.7% over the last 12 months.
The energy index, meanwhile, fell 11.7% over the last year.
While the report showed an easing year-over-year inflation rate, it’s still above the Federal Reserve’s 2% target.
The Fed hiked interest rates by another quarter percentage point last month — bringing the benchmark funds rate from 5% to 5.25% — in another aggressive move to tame inflation and avoid sparking a recession.
The central bank hinted that it was done hiking interest rates after raising them to a high not seen in 16 years.
Tuesday’s CPI report is crucial to the Fed’s next rate decision, which is set to be announced on Wednesday.
Fed officials were reportedly divided earlier this month on whether to pause hikes in June, according to the minutes of their May 2-3 meeting.
“Several (policymakers) noted if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary,” the minutes said.
At the same time, “some” officials said that the persistence of high inflation meant that “additional (rate hikes) would likely be warranted at future meetings.”
In an overt shift in May, the Fed no longer said it “anticipates” further rates will be needed, only that it will watch incoming data to determine if more hikes “may be appropriate.”
The Fed governors cut from their previous policy statement in March indicating that more rate hikes might be needed.
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