Inflation rate cooled in May with CPI up 4% from year ago

Overall prices of goods and services rose 4% in May compared to a year ago, increasing 0.1% from the prior month which was the smallest year-over-year increase since March 2021, according to Tuesday’s (June 13) report from the U.S. Bureau of Labor Statistics.

The May reading was close to economists’ predictions of a 0.2% gain month-over-month and a 4.1% increase compared with May 2022.

The annual Consumer Price Index (CPI) reading peaked at 9.1% in June 2022 and while inflation has been sticky in many categories prices have come down from lofty highs posted last summer.

Grocery prices rose 5.8% in May from a year ago led by a 10.7% jump in cereal and bakery prices, and 8.7% higher for soda and nonalcoholic beverage. Menu prices at restaurants were 8.3% higher. Overall food prices rose 0.2% from the prior month and 6.7% from the year ago period.

Energy costs were down 3.6% from the prior month and 11.7% lower than a year ago which helped tame the overall inflation rate reported for May. Gasoline prices fell 5.6% from the prior month and were down 11.7% from a year ago. Core inflation that excludes food and energy prices rose 5.3% from a year ago with shelter, insurance, auto repair costs, apparel and personal care prices all pushing higher year over year. Shelter costs were up 8% for homeowners and 8.7% for renters compared to a year ago.

The costs of owning a car or truck also increased with vehicle maintenance and repair costs rising 13.5% from a year ago. Motor vehicle insurance costs were up 17.1% from the same period last year.

Utility bills were down 2.6% from April, and natural gas prices were 11% cheaper than a year ago. Electricity costs were down 1% from April but still 5.9% higher than a year ago.

Discretionary items such as apparel costs were up 0.3% from April and 3.5% more expensive than a year ago. New car prices also remain 4.7% higher than a year go, while used car prices fell 4.2% year-over-year.

“The moderate slowing provides the Fed room to pause its rate hikes this week,” said Kathy Bostjancic, chief economist at Nationwide in New York. “However, if economic data continues to surprise the upside and inflation remains sticky, the door is open for another rate hike in the coming months, as soon as July.”