Inflation grew at 4% rate in May, its slowest pace in two years

Inflation in May cooled to its slowest pace in two years, indicating price increases are easing amid the Federal Reserve’s rate-hiking regime. 

The Consumer Price Index grew at an annual rate of 4%, the Labor Department said on Tuesday — the smallest increase since March 2021 and below the 4.2% annual increase economists had expected.

Core inflation, which strips out volatile food and energy prices, rose 5.3%, dipping from its annual rate of 5.6% so far this year. Economists have focused more on “core” inflation as it presents a truer gauge of price increases, and the current rate is still far above the Fed’s 2% target.

Falling energy prices counterbalanced rising costs for shelter, new and used cars and food. Still, the report contained some worrying figures, as the fastest-growing prices were in essential categories.

“Headline inflation dropped while core inflation continued to grind down, but this report contains plenty of pain, especially for lower-income Americans,” Robert Frick, chief economist at the Navy Federal Credit Union, said in a note.

He added, “Higher food and shelter prices pushed up the costs of the top two necessities that take outsized chunks from those with lower incomes. And higher used vehicle prices, combined with high vehicle insurance and repair costs, make transportation an increasingly heavy burden.”

The Federal Reserve’s rate-setting committee begins a two-day meeting on Tuesday. Officials are widely expected to hold interest rates steady after imposing 10 straight hikes dating back to March 2022. A so-called “skip,” which top Fed officials have called for, would give the central bank time to assess how the recent hikes have affected inflation and the overall economy.

The Associated Press contributed reporting.