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CPI cools down in May, indicating Fed may hold rates steady

CPI brings ease, gas prices slides in new report

Consumer price index (CPI) slowed down in May, showing a decline in inflation rate. 

Both headline and core CPI cooled down, boosting confidence for the Federal Reserve to slow down on raising interest rates.

Consumer prices slows down

The US Bureau of Labor Statistics (BLS) reported on tuesday that Consumer prices declined to 4% on a yearly basis in May from 4.9% in April. This marked the 11th straight month of decline in the annual pace of inflation, coming in slightly lower than the 4.1% expected.

The Consumer Price Index (CPI) which is released by the US Labour Department measures the changes in the multitude of goods and services, surged just 0.1% in the last month. This brings the annual level down to 4%. Core CPI, which includes food and energy categories saw an increase of 5.3% from the 5.5% expected.

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Food rose just 0.2%, while energy prices declining at 3.6% helped to keep the CPI rate in check.

On a month-on-month basis, the CPI and core CPI has increased by 0.1% and 0.4%, respectively.

Chart: CNBC. Source: U.S. Bureau of Labor Statistics

The biggest contributor to the headline CPI reading was housing prices which rose by 0.6%. Housing makes up about one-third of the index’s weighting.

This numbers come in the wake of Federal Reserve’s policy meeting which starts today. The Central Bank have continued to raise interest rates to bring inflation down to its 2% target. It’s expected that the Fed will be holding rates steady, pausing its 14-month campaign of aggressive interest rate hikes.

“The numbers are probably enough to see the Fed keep rates on hold this month, as they have suggested,” said Stuart Cole, chief macro economist, at Equiti Capital in London.

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