Price Stagnation at 4%: Living Costs Reach a Gentle Simmer as Inflation Decelerates

Households are receiving respite from price surges, as the swift escalation in inflation observed in 2021 gradually wanes.

The Consumer Price Index, a widely-tracked gauge of living expenses, ascended by 4% within a span of 12 months in May, as stated by the Bureau of Labor Statistics on Tuesday. This figure represents a decrease of more than half compared to the peak of 9.1% inflation registered less than a year ago in June 2022, marking the lowest level since March 2021.

In other words, the index experienced a mere 0.1% increase during the month, following a 0.4% rise in April. Motorists witnessed relief at the fuel station, as gas prices dropped by 5.6% since April, playing a significant role in the moderation of the inflationary pattern.

Inflation Continues to Fade

Price escalation, quantified by the annual variation in the consumer price index, presently stands at less than half of the record-breaking zenith it attained in June of the previous four decades. (To view a precise data point, click or hover over the corresponding section of the chart.)

The alleviation of price escalations highlighted the significant headway achieved in the battle against inflation, particularly concerning essential commodities such as fuel and groceries.

The cost of food purchased for consumption at home witnessed a 5.8% increase over the course of the year in May, a notable reduction from the 13.5% surge recorded in August 2022. In an effort to raise borrowing expenses, deter borrowing and expenditure, and moderate the economy, the Federal Reserve raised its benchmark interest rate consecutively for the 10th time in May. This approach aimed to restore equilibrium between supply and demand and mitigate further price hikes, as per the Fed's perspective.

With the decline of inflation steadily progressing towards the Federal Reserve's target of 2%, the central bank is now widely anticipated to halt its endeavors in that regard, at least temporarily, and maintain interest rates at their current level during the upcoming Wednesday meeting. Traders have factored in a 94% probability that the Fed will leave its interest rate unchanged, as indicated by the CME Group's FedWatch tool, which predicts interest rate hikes based on data from futures trading on the Fed.

Despite the overall easing, certain price escalations stubbornly persisted. "Fundamental" prices, which exclude the volatile categories of food and energy, experienced a 0.4% increase in May, mirroring the same change observed in April and March, resulting in a 5.3% rise over the course of the year.

The prices of pre-owned cars and trucks surged by 4.4% in May, adding to an equal increase recorded in April. Costs associated with housing, a significant component of the overall Consumer Price Index (CPI), also accelerated, with a 0.6% jump in May compared to a 0.4% rise in April. Additionally, car insurance witnessed a 2% increase over the month, bringing its year-on-year growth to 17.1%, marking its most substantial annual surge since the Bureau of Labor Statistics (BLS) began documenting it in 1986.