Consumer prices slip 0.1 percent in May as inflation is held at bay

By Martin Crutsinger

 

AP Economics Writer

WASHINGTON — Consumer prices declined in May, reflecting a big drop in energy prices and smaller declines in a number of other areas. It was the second monthly decline in the past three months and underscores how inflation has been a no-show in the slow-growing U.S. economy.

Consumer prices edged down 0.1 percent last month following a small 0.2 percent increase in April, the Labor Department reported Wednesday. Prices had fallen 0.3 percent in March. In addition to a drop in energy costs last month, the price of clothing, airline fares and medical care also declined.

Core inflation, which excludes energy and food, rose a slight 0.1 percent in May.

The Federal Reserve boosted a key interest rate Wednesday. But some economists suggested that the unexpected slowdown in inflation in recent months might cause the Fed to slow the pace of further rate hikes.

“From out of nowhere we have now had three months of unusual weakness in underlying prices,” said Paul Ashworth, chief economist at Capital Economics.

He said the inflation slowdown was occurring at the same time that the unemployment rate has fallen to a 16-year low.

“It … increases the downside risks to our forecast that there will be a further two rate hikes in the second half of this year,” he said in a research note.

Over the past 12 months, consumer prices are up 1.9 percent while core inflation has risen 1.7 percent. The Federal Reserve seeks to manage interest rates to promote moderate annual gains in inflation of 2 percent. The Fed’s preferred measure of inflation, tied to consumer spending, has been below 2 percent for five years and in recent months slipped back a bit.

However, Fed officials have said they believe the recent slowdown in price gains reflected transitory factors and they expect inflation will resume moving toward 2 percent as low unemployment helps to boost wages.

In May, food costs edged up a tiny 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 up just 0.9 percent while energy prices have risen 5.4 percent.

Clothing costs dropped 0.8 percent in May, while the cost of new cars and used cars both fell 0.2 percent.

Medical services such as the cost of doctor’s visits dipped 0.1 percent in May but have risen 2.5 percent over the past 12 months.

 

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