Inflation eased slightly in May, outperforming economists’ expectations

(WASHINGTON) — Consumer prices rose 3.3% in May compared to a year ago, easing slightly from the previous month and outperforming economists’ expectations.

The data arrived hours before the Federal Reserve is set to announce a decision about whether to move its benchmark interest rate.

Price increases have slowed significantly from a peak of about 9%, but inflation still stands more than a percentage point higher than the Federal Reserve’s target rate of 2%.

For nearly a year, the Fed has held interest rates steady at their highest level since 2001, hoping that elevated borrowing costs would slow economic activity, reduce consumer demand and lower prices.

Instead, the economy has hummed along and price increases have largely stalled.

A jobs report released on Friday blew past economist expectations, demonstrating the resilient strength of the economy. Blockbuster hiring in May exceeded the average number of jobs added each month over the previous year, the U.S. Bureau of Labor Statistics said.

Average hourly wages surged 4.1% over the year ending in May, the report found. That rate of pay increase exceeds the pace of inflation, indicating that the spending power of workers has grown even as prices jump.

The data marks a boon for workers but could give pause to policymakers, since they fear that a rise in pay could prompt businesses to raise prices in order to cover the added labor cost.

Economic output slowed markedly at the outset of 2024, though it continued to grow at a solid pace.

The Fed, in turn, has all but abandoned a previous forecast of three interest rate cuts by the end of the year.

The Federal Open Market Committee, the Fed’s decision-making body on interest rates, said last month that it does not anticipate cutting interest rates until it retains confidence that inflation is moving sustainably downward.

“So far the data has not given us that greater confidence,” Fed Chair Jerome Powell said at a press conference in Washington, D.C., last month. “It is likely that gaining such greater confidence will take longer than previously expected.”

Economists expect the Fed to hold interest rates steady for the seventh consecutive time at the close of its meeting on Wednesday.

The Fed risks a rebound of inflation if it cuts interest rates too quickly, since stronger consumer demand on top of solid economic activity could lead to an acceleration of price increases.

A prolonged period of high interest rates, however, threatens to place downward pressure on economic growth and plunge the U.S. into a recession.

Price increases have drawn attention from voters as the U.S. hurtles toward what appears to be a closely contested presidential election in the fall.

Eighty-five percent of U.S. adults surveyed by ABC News/Ipsos last month said inflation is an important issue, making it the second-highest priority among adults surveyed. The top priority, the economy, also relates to individuals’ perceptions of price increases.

On each of those issues, the economy and inflation, those surveyed by ABC News/Ipsos said they trusted former President Donald Trump over President Joe Biden by a margin of 14 percentage points.

“Inflation is something that affects absolutely everybody,” Elaine Kamarck, a senior fellow in the Governance Studies program at the Brookings Institution, previously told ABC News. “People notice it, whether they’re rich or poor.”

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