Inflation eased in May, points to relief for consumers

For a second straight month, inflation in the United States eased, with cheaper gasoline keeping a lid on consumer prices. This is a hopeful sign that the rise in prices that occurred earlier in the year may have passed. If this trend continues, it will lead to the Federal Reserve cutting interest rates from its 23-year peak.

Consumer prices excluding volatile food and energy costs rose 0.2% from April to May, the government said Wednesday. That was down from 0.3% the previous month and was the smallest increase since October. Measured from a year earlier, consumer prices were up 3.3% last month from May 2023, according to data issued by the Department of Labor on Wednesday. Economists expected the reading to come in at 3.4%, or unchanged from April’s pace, according to FactSet.

The Biden administration says the inflation report is “welcome news”. Lael Brainard, head of the National Economic Council, said that it “is welcome news, particularly for families that are feeling squeezed by the cost of living.”

“The President knows that families have been through a lot with the pandemic. Inflation went up with the pandemic, and he knows that the cost of living is just too high for a lot of families,” Brainard also pointed to steps under the Biden administration lowering the cost of prescription drugs and groceries.

Stocks rose Wednesday morning as investors cheered the May Consumer Price Index report. The Dow rose 334 points, or 0.9%. The S&P 500 gained 0.8% and the Nasdaq Composite added 0.9%.

The Federal Reserve will report its latest interest rate decision later today, which is expected to be a pause. The central bank will also release its latest projections on how many times it expects to cut rates this year — or any other rate changes. While the current projections are for three quarter-point rate cuts, some investors believe that a strong labor market and a string of sticky inflation reports earlier this year means the Fed could trim that forecast to just one or two cuts in 2024.