Consumer Prices Barely Budge in May, Easing Inflation Fears
Despite the sharpest jump in the cost of food in 19 months, overall consumer prices increased only 0.1% last month, the Labor Department reported Wednesday, reducing the threat of inflation and probably lessening the likelihood that the Federal Reserve will raise interest rates again this month.
Economists were cheered by the report even though the figures were gathered before gasoline prices exploded this month.
“Taken all around, the report is quite reassuring,” said Barry Bosworth, an economist at the Brookings Institution think tank in Washington. “We still don’t have in any sense a consistent story of worsening inflation in the United States. Basically the odds of what could be called a soft landing have increased.”
The current surge in gasoline prices has reversed a slide of 3.5% in May, when declining prices for fuel, tobacco products and clothing offset rises in airline fares and food.
Food prices rose 0.5% last month, the biggest boost since October 1998. Rising prices for vegetables, beef and poultry overshadowed falling prices for fruits and dairy products.
The report also found that new car prices rose 0.2% last month and clothing prices fell 0.2%.
Analysts said that the relatively steady prices are further evidence that the Fed’s six interest rate hikes over the past year have begun to take effect.
In a separate report Wednesday, the Federal Reserve said the economy posted solid growth in April and May although there were “signs of some slowing from the rapid pace earlier in the year.”
Economists said the reports made it likely that Federal Reserve policy makers will leave interest rates unchanged when they meet June 27.
“The Fed should declare victory, sit back and do nothing,” said Gordon Richards, an economist for the National Assn. of Manufacturers. “The threat of inflation has receded, and there is no longer any danger of the economy overheating.”
The Federal Reserve detected some indications that inflation is not totally under control in its survey of economic activity, known as the beige book. The report contains information collected by the 12 regional banks in the Federal Reserve system.
“All but Minneapolis [regional Fed bank] said scattered signs of cooling are in evidence or the pace of growth is slowing,” the report said. “Indications of worsening price inflation, while not widespread, are reported by several districts.”
The Fed also said that employers are continuing to report shortages of workers and difficulty in hiring and recruiting employees. But it said the tightness in the labor market has not intensified.
The 0.1% increase in the consumer price index, the most closely watched of the government’s barometers of inflation, followed an April report that showed no change. The “core” inflation rate, which excludes volatile food and energy prices, was up 0.2% last month.
In the first five months of this year, core inflation rose at an annual rate of 2.7%, compared with a 1.9% rate for all of last year. Including food and fuel, prices are rising this year at an annual rate of 3.6% compared with 2.7% for last year.
With the sharp rise in gasoline prices recorded in recent days, economists expect the June report--to be issued next month--will show a substantial jump. But they said the spike in fuel prices, which the nation also experienced early this year, are not a cause for panic.
“There will be one more big rise in energy prices during the summer, which we’re beginning to see at the fuel pumps, but after that energy prices should level off,” Richards said. “Most importantly, these fluctuations are not being transmitted to the core rate,” he said.
Last week, the Labor Department reported that wholesale prices were unchanged in May, while the core rate of inflation at the wholesale level increased 0.2%.
Some earlier economic reports covering retail sales, home sales, factory orders and unemployment also suggest the economy is slowing. Bosworth said interest rates remain relatively low despite the six hikes since last June. He said the recent slowdown in economic activity may have come because consumers and investors anticipated further rate hikes which now seem unlikely.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Consumer Price Index
Moderating inflation in May raised hopes that the Federal Reserve is done raising interest rates. Monthly percentage change, seasonally adjusted:May:
0.1%Source: Bureau of Labor Statistics
