Millions of American consumers are seeing uncomfortably high prices for the most basic necessities as the U.S. economy has been battling inflation for years. Despite the Labor Department indicating that prices climbed 3.3% from the same time last year, remaining well above the Federal Reserve’s 2% target, the department saw a welcoming indicator that inflation may be slowing down. The rate of inflation has been closely watched since May and inflation data showed a lower inflation rate than expected.
Despite the report suggesting that inflation is easing its hold on the economy, prices increased by 3.3% compared to a year ago and continue to exceed the Federal Reserve’s target rate of 2%.
According to the Labor Department, the consumer price index (CPI), which tracks the price changes of items such as fuel, food, and housing paid by consumers, showed no change in May compared to the prior month. This could indicate a slowdown in inflation.
Another data point that measures underlying pressures within the economy also showed moderation, with core prices, which exclude more unstable measurements of gasoline and food to better assess price growth trends, increased by 0.2% in May. The gauge climbed 3.4% from the same time last year, which is the lowest reading since 2021.
“After firing hot for the last few years, it appears the inflation engine is starting to cool off,” said Jason Pride, chief of investment strategy and research at Glenmede.
The high inflation occurring in recent years has created significant financial pressures for many U.S. households who have been forced to pay more for everyday necessities like food and rent. These price increases are especially harsh for lower-income Americans who tend to spend much of their tightly-stretched paychecks already on necessities, inflation leaving them little flexibility to save money.
Consumers have been witnessing prices rise across multiple industries. Last month, again, housing costs were the biggest driver of inflation, accounting for more than two-thirds of the total monthly increase according to the Federal Reserve’s report. The report revealed that rent costs increased 0.4% for the month, up 5.3% from the same time last year. Because of how directly rising rent affects household budgets, higher housing costs are of serious concern for millions of Americans.
Food prices are also continuing to rise, which is one of the largest and most felt reminders of inflation for many households. While grocery prices were largely unchanged, rising 0.1% over the course of May, the price of food away from home increased 0.4%.
According to Robert Frick, corporate economist at the Navy Federal Credit Union, “One main pain point, food prices, did rise a bit, but prices of food at grocery stores held steady… There was relief at the pump, but unfortunately, home and apartment costs continue to rise and remain the main cause of inflation. Until those shelter costs begin their long-awaited fall, we won’t see major drops in CPI.”
The Federal Reserve’s softer-than-expected report came just hours before it’s scheduled to announce its latest interest-rate decision. Anticipating that the Federal Reserve will hold rates at a 23-year high, investors will be parsing updated economic quarterly projections and Fed Chair Jerome Powell’s post-meeting press conference for clues about where monetary policy is headed for the year.
