Inflation dips to 3.3% in May, down fractionally year over year

Inflation pulled back in May as prices of food and goods receded but housing and insurance costs remain elevated, according to Wednesday’s (June 12) report from the U.S. Bureau of Labor Statistics (BLS).

The BLS reported that the Consumer Price Index (CPI) rose 3.3% in May, compared to 3.4% a year ago. Core inflation that strips out fuel and food rose 3.4% over the last 12 months and was flat against April. Core CPI also came in lower than expectations and economists considered the report a step toward lower interest rates by later this year. The Federal Reserve said Wednesday that interest rates will hold steady through the summer and hinted at one rate cut later this year.

Mark Zandi, chief economist at Moody’s Analytics, said the May report suggests inflation is returning to acceptable rates, down from the peak above 9% in the summer of 2022. He said goods inflation is much better, but services prices are slower to come down.

Food prices rose 2.1% compared to a year ago. Grocery prices on food consumed at home increased 1% year over year. Meat, fish and egg prices increased by 2.4% over the last year. Nonalcoholic beverage prices increased 1.3% and fruit/vegetable prices ticked up 0.6% from a year ago. Cereals and bakery product prices rose 0.7% in the last year.  The dairy and related products index fell 1% over the past year. Food away from home prices rose 4% in May compared to the year-ago period.

Consumers benefited in May with gasoline prices down 3.6% from April, but prices were still 2.2% more than a year ago. Consumers paid an average pump price of about $3.58 per gallon at the end of May. Prices have come down since then with average prices at $3.43 per gallon on June 10. Arkansas gasoline prices are lower. The average price in Arkansas on June 12 was $2.96 per gallon, down 2.3% from a year ago, according to GasBuddy.com.

Shelter costs remain elevated at 5.4%, down from the peak of more than 8% in March 2023. Homeowners saw the cost of ownership rise 5.7% in May over a year ago. Rent prices are up 5.3%, according to the BLS.

Economists at Wells Fargo Economics said housing inflation is directly related to rising real estate prices, which have started to subside among higher interest rates and weaker overall demand.

“It’s falling more slowly than people were hoping for,” said Michael Pugliese, a senior economist at Wells Fargo. “It moves at a glacial pace both up and down.”

Economists expect shelter inflation to be sticky, because of the lag effect. Zandi said market rents for new leases have been flat over the past two years.

Other categories saw notable increases over the last year such as motor vehicle insurance up 20.3%, medical care costs up 3.1%, over-the-counter drugs up 5.9%, and tickets for sporting events up 21.7% in the last year. Internet costs have risen 5% over the past 12 months and electricity costs rose 5.9%.