US inflation quiet, edging lower on the year

American consumer prices barely stirred in May with a slight rise on the month balanced by an equally minor decline for the year, leaving the Fed with little new inflation input for its rate decision next week.

The consumer price index (CPI) rose 0.1% last month, half the expectation and down from 0.3% in April. The core rate was unchanged at 0.1%, also missing its 0.2% forecast. Annual rates slipped to 1.8% from 1.9% in the overall and to 2.0% from 2.1% in the core.

FXStreet 

The CPI report from the Bureau of Labor Statistics of the Labor Department noted increases in healthcare costs and rents.

The Federal Reserve governors meet on the 18^th and 19^th next week for the FOMC policy session. The central bank has been warning about the slowdown in global economic growth and the threats from the US/China trade dispute and the British exit from the EU for close to six months.

The decline in inflation this year has added another concern to the Fed’s assessment of the US economy and its effect on policy. 

Core CPI has fallen from 2.2% in November, December and January to May’s 2.0%. The overall rate has slipped from 2.5% last October to its current 1.8%.

The Fed’s preferred inflation measure, the personal consumption expenditure price index, PCE prices for short, has fallen even more sharply, from 2.0% in the core gauge in December to 1.6% in April and from 1.8% to 1.5% in the overall measure. May PCE data will be released on June 28^th.

Reuters

These declines in the context of an economy that expanded at a 3.1% annual rate in the first quarter and with wages rising at nearly their fastest rate in a decade have prompted some speculation that the Fed might reduce interest rates to counteract fading prices.

Federal Reserve Chairman Powell dispelled that notion after the May 1st FOMC commenting, “We do not see a strong case for moving [rates] in either direction.”  “The weak inflation performance in the 1st quarter was not expected...some of it appears to be transitory or idiosyncratic.” Mr. Powell did not offer an opinion on whether inflation could lead to lower rates saying only that the governors were united in considering the current policy appropriate.

The dollar sank initially after the release as did Treasury yields but by the end of the day both had reversed with Treasury yields returning to par and the dollar scoring small gains against the euro, yen, Australian Dollar and other majors.