Prices stayed flat in May as inflation hit plateau

Consumer prices did not rise on the whole in May and the annual inflation rate came in slower than expected, according to data the Labor Department released Wednesday.

The consumer price index (CPI), the popular gauge of inflation, was unchanged over the past month and is up 3.3 percent annually. The CPI was expected to rise 0.1 percent in May and 3.4 percent over the past year, according to consensus estimates.

The new inflation data comes hours before the Federal Reserve’s monetary policy panel is set to announce its June interest rate decision. The Federal Open Market Committee began meeting Tuesday and is expected to hold interest rates steady at a range of 5.25 percent to 5 percent Wednesday.

Fed Chair Jerome Powell is set to hold a press conference at 2:30 p.m. EDT. The FOMC will also release new projections of economic growth, inflation, unemployment and the Fed’s expected interest rate path with the rate decision.

Inflation is a top issue for voters ahead of the elections, according to public opinion polling, and May’s mild numbers will come as good news to President Biden, who has been dealing with low approval ratings on his handling of the economy.

The Biden administration has launched a campaign against private sector price-hikes in recent months after companies took advantage of fiscal and monetary stimulus following the pandemic to increase profits to record levels.

Food prices were flat in May, ticking up just 2.1 percent annually as grocery prices failed to advance on the month. Energy prices were up 3.7 percent.

Housing costs were still elevated compared to inflation overall, with shelter up 5.4 percent compared to last May.

Many categories saw deflation as prices went down in computer software, floor and window coverings, gasoline and several food groups.

The horizontal movement in the CPI follows a similar move in the personal consumption expenditures (PCE) price index, the Fed’s preferred measure of inflation. The PCE fell to 2.75 percent in April from 2.81 percent in March.

The numbers come in the wake of a strong jobs report, with the economy adding 272,000 jobs in May, according to the Labor Department.

The unemployment rate ticked up last month to 4 percent from 3.9 percent, the highest mark since January 2022, but still low by historical standards.

The leveling off of prices in May will come as good news to the Fed as it considers how long to keep interest rates at their current level.

Markets put the odds of a rate cut in September at 60 percent Wednesday morning while strongly favoring the current levels for the June and July meetings, according to the FedWatch prediction algorithm from financial company CME.

Updated at 9:26 a.m. EDT.