Here’s the inflation breakdown for May 2024 — in one chart

Here’s the inflation breakdown for May 2024 — in one chart
US News

Customers purchase gas at a station on June 11, 2024 in Chicago, Illinois. 

Scott Olson | Getty Images

Inflation fell slightly in May, as positive trends like lower gasoline prices were counteracted by others like stubbornly high costs for housing.

Trends under the surface suggest the fight against inflation continues to bear fruit, albeit slowly, economists said.

The consumer price index, a key inflation gauge, rose 3.3% in May from a year ago, the U.S. Labor Department reported Wednesday. That’s down from 3.4% in April.

“I think this report reinforces the disinflationary narrative, that inflation is almost back in the bottle,” said Mark Zandi, chief economist at Moody’s Analytics.

‘Encouraging’ news for interest rates

The CPI gauges how fast prices are changing across the U.S. economy. It measures everything from fruits and vegetables to haircuts, concert tickets and household appliances.

The April inflation reading is down significantly from its 9.1% pandemic-era peak in 2022, which was the highest level since 1981. However, it remains above policymakers’ long-term target, around 2%.

The Federal Reserve uses inflation data to guide its interest rate policy. Economists expect the central bank to leave borrowing costs unchanged — at a roughly two-decade high — at the conclusion of its latest policy meeting later Wednesday.

However, the newest batch of inflation data supports the notion of an interest-rate cut in coming months, assuming the trajectory doesn’t change, economists said.

“We still need several more months of this, but the fundamentals are encouraging,” Paul Ashworth, chief North America economist at Capital Economics, wrote in a note Wednesday.

Food and gasoline inflation fell

While annual data on inflation trends are helpful, economists generally recommend looking at monthly numbers as a better guide of short-term movements and inflation trends.

The monthly reading was unchanged, at 0% in May, down from 0.3% in April and 0.4% in March. (To get back to target, economists say the monthly reading should consistently be in the range of about 0.2%.)

That downward move was “largely driven” by lower gasoline prices, said Joe Seydl, senior markets economist at J.P. Morgan Private Bank.

U.S. gasoline prices fell 3.6% in the month from April to May, after having increased in each of the prior three months, according to CPI data. (Prices are up about 2% over the past year.)

Consumers paid an average pump price of roughly $3.58 a gallon at the end of May, according to weekly data published by the U.S. Energy Information Administration.

They’ve continued to decline since then: Average prices were $3.43 a gallon as of June 10.

There has also been a broad pullback in grocery prices.

Monthly “food at home” inflation has been at 0% (or even negative) for the past four months, according to CPI data.

“Food inflation has fallen back really sharply,” said Olivia Cross, a North America economist at Capital Economics.

That’s largely due to falling prices for agricultural commodities, in addition to others like easing pressures in the labor market, she said.

Housing inflation is falling slowly

Single family homes in a residential neighborhood in San Marcos, Texas.

Jordan Vonderhaar/Bloomberg via Getty Images

Prices for household necessities ‘going nowhere fast’

That said, housing inflation is falling. It’s down from a peak over 8% in March 2023.

Economists expect it to continue to decline given prevailing real estate trends, but say it will likely take a while for that cycle to play out.

For example, market rents for new leases are flat and “haven’t gone anywhere for two years,” Zandi said.

“Basic [household] necessities — food, gas, rent — they’re all going nowhere fast, and that’s really very encouraging,” Zandi added.

'Squawk on the Street' crew react to May's CPI report

Aside from housing, other categories with “notable increases” over the last year include motor vehicle insurance (up 20.3%), medical care (+3.1%), recreation (+1.3%) and personal care (+2.9%), the Bureau of Labor Statistics said.

Meanwhile, some categories have seen prices pull back. Broadly, physical goods prices (excluding food and energy commodities) declined by 1.7% in the past year, including a 9.3% reduction for used cars and trucks; airline fares are also down, by 5.9%.

Services inflation has been ‘slower moving’

Inflation for physical goods spiked as the U.S. economy reopened in 2021. The Covid-19 pandemic disrupted supply chains, while Americans spent more on their homes and less on services like dining out and entertainment.

Now, “the goods side of the inflation story is pretty much back to normal,” Pugliese said. “It’s really the services side that’s been much slower moving.”

There are many reasons for that, economists said.

I think this report reinforces the disinflationary narrative, that inflation is almost back in the bottle.

Mark Zandi

chief economist at Moody’s Analytics

Read the original article here

Products You May Like

Articles You May Like

Jodie Turner-Smith Joins ‘The Agency’ at Paramount+ With Showtime
England squad reveal their favourite songs: “Pickford’s music is horrendous!”
8 European Dress Trends We’re Copying from Stylish Scandis and the Fashionable French
Here’s the deflation breakdown for June 2024 — in one chart
JPMorgan Chase (JPM) earnings Q2 2024