According to the Consumer Price Index, which was made public on Wednesday, prices rose 3.3% in May compared to the same month last year. That was a decrease from the April estimate and less than the 3.4 percent that economists had predicted.
Even yet, it exceeds the Federal Reserve’s target of 2 percent, which it establishes using a separate but comparable price index. However, it was a positive indication for elected officials and the central bank, who had been concerned about the year-long stagnation of inflation reduction efforts.
During the pandemic’s recovery, high inflation shook the world economy, with June 2022 marking the top of annual price rises in the US at 9.1%. In an effort to control inflation, the Fed began hiking interest rates in March of that year. Last July, they hit a two-decade high of 5.3 percent.
The burden of increasing borrowing costs on Americans was lessened in 2023 thanks to the higher rates, which also helped to dramatically reduce inflation. Fed members also hinted that rate cuts may be forthcoming.
That calculus was altered in 2024. Several months of unexpectedly high inflation reduced the chances of several rate decreases before the year ended.
Still, there were some encouraging indications in the May report. Prices for groceries remained the same from April, but those for motor insurance went down from the previous month. Airline and gas prices decreased as well.
Fed representatives forecast one rate reduction this year during their meeting last week. Nevertheless, Fed Chair Jerome H. Powell issued a warning against reading too much into the data.
Mr. Powell stated on Wednesday that “readings like today’s are a step in the right direction.” But there is just one reading. One data point shouldn’t be the primary source of your motivation.