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CPI reports shows inflation cut in half?

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CPI Report Shows Inflation Has Been Cut in Half From Last Year’s Peak

Decline to 4% in May shows progress but inflation remains above Fed’s desired level

By Gwynn GuilfordFollow

Updated June 13, 2023 1:30 pm ET


Inflation in May was cut in half compared with a year earlier, according to the latest CPI report. Photo: Richard B. Levine/Zuma Press

Inflation fell in May to around half last year’s peak but remained elevated, showing Federal Reserve officials made progress in cooling price pressures but could have more work to do.


The consumer-price index rose 4% last month from a year earlier, the Labor Department said Tuesday, well below the recent peak of 9.1% last June and down from April’s 4.9% increase.




Fed officials meeting June 13-14 are debating whether to pause interest-rate increases after raising them aggressively from low levels to slow economic growth and tame inflation, which they would like to see at 2%. The Fed in May raised its benchmark interest rate to the current range between 5% and 5.25%, the highest level in 16 years.


If the Fed holds rates steady this week, it could consider whether to raise rates at their subsequent meeting in July or a meeting later in the year.


“Directional progress should not be confused with mission accomplished,” said Sarah House, senior economist at Wells Fargo.


Stocks rose Tuesday and Treasury yields fell after the release of the inflation figures.


So-called core consumer prices, which exclude volatile food and energy categories, climbed 5.3% in May from a year earlier, down from 5.5% in April. Economists see core prices as a better predictor of future inflation.



Core prices remain elevated in part because an earlier surge in housing-rental prices continues to show up in the inflation figures. Apartment-rent growth has since cooled significantly—declining to just under 2% over the 12 months ended in May from double-digit increases a year ago. Those price changes will take pressure off inflation, but they take time to show up in inflation data due to the lag in how rent is calculated.


Overall consumer prices increased a seasonally adjusted 0.1% in May from the prior month, down from April’s 0.4% increase. Core consumer prices rose 0.4% in May from the prior month, the same pace as in April and March, suggesting underlying price pressures remain firm.


Rising housing, used-vehicle and food prices drove inflation last month, the Labor Department said. Gasoline prices declined 5.6% in May from April, and other energy prices also dropped.


Fed officials have focused recently on prices for a subset of labor-intensive services by excluding food, energy, goods and housing prices, believing that category could reveal whether wage pressures from the strong labor market are passing through to consumer prices. That category rose 0.24 percentage point in May, close to its average in the two decades before the pandemic, J.P. Morgan economist Michael Feroli said in an analyst note.


The U.S. economy has maintained momentum this year, staving off predictions of recession. The job market remains robust and consumers have boosted their spending, though one measure shows economic output is falling. A possible credit crunch following the March collapse of a few regional banks could crimp the economy.


The Fed may need time to assess whether its rate policies and banking-sector stresses are exerting sufficient downward pressure on prices, said Aichi Amemiya, U.S. economist at Nomura Securities, referring to the slowing of price increases.


While inflation has cooled significantly, higher prices for many goods and services are weighing on household spending decisions.


Geovanni Williams, 45 years old, said the biggest hit to his wallet recently is higher prices for his two children to play on traveling sports teams.


“Airline tickets, hotels—all of that has gone up. The fees to participate in these tournaments have gone up,” said Williams, who lives in Fairfax, Va., and works at a credit union. “Prior to the pandemic, those might have been no more than $40 for a weekend pass. Now they’re more like $65, $75, $85.”


His 16-year-old daughter recently played in basketball tournaments in Alabama and Virginia Beach, Va., and she will soon travel to events in Chicago and Atlantic City, N.J.


Williams said he has cut his spending to make up the difference, shifting from takeout dinners from Cava Mezze to preparing food at home. He also canceled his cable plan. “I was paying $230 a month—and with all the sports, my kids are never here anyway,” he said.


Nick Timiraos contributed to this article.


Write to Gwynn Guilford at gwynn.guilford@wsj.com

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