WASHINGTON – consumer prices fell in May, as a result of a large decline in the prices of energy and smaller decreases in a number of other areas. It was the second monthly decline in the last three months and underlines how inflation is a no-show in the slowly growing US economy.
Consumer prices edged down 0.1 percent last month after a 0.2 percent increase in April, the Labor Department reported on Wednesday. The prices had fallen 0.3 percent in March. In addition to reducing the cost of energy in the last month, the price of the clothes, the airline, the fares and medical care also declined.
Core inflation, excluding energy and food, rose a tiny 0.1 percent in May.
The Federal Reserve was expected to boost a key interest rate later on Wednesday. But some economists suggested that the unexpected slowdown of inflation in recent months the Fed to slow the pace of further rate hikes.
“From nothing we have now had three months of unusual weakness in the underlying prices,” said Paul Ashworth, chief economist at Capital Economics.
He said the inflation slowdown was occurring at the same time that unemployment has fallen to a 16-year low.
“It will not stop the Fed from hiking interest rates later today, but it increases the downside risks to our forecast in that there are still two more rate hikes in the second half of this year,” he said in a research note.
Over the past 12 months, the consumer prices by 1.9 percent, while core inflation has increased 1.7 percent. The Federal Reserve wants to manage interest rates to promote moderate annual gains of inflation of 2 percent. The Fed’s preferred measure of inflation, is linked to the consumption expenditure is under 2 per cent for five years and in the last few months slipped back a bit.
However, Fed officials have said they believe the recent slowdown of the price increases reflected transitory factors and they expect inflation will resume moving in the direction of 2 percent as a low unemployment fosters wages. The unemployment rate in May dipped to 4.3 percent.
In May, food costs edged up a small 0.2 percent, while energy costs fell 2.7 percent, led by a 6.2 percent drop in the price of gasoline. Over the past 12 months, food costs are only 0.9 percent, while the prices of energy rose to 5.4 percent.
Clothing costs fell 0.8 percent in May, while the price of new cars and used cars fell 0.2 percent.
Medical services, such as the cost of doctor’s visits baptized 0.1 percent in May, but has risen 2.5 percent over the past 12 months.