Consumer prices edged down in May, the Bureau of Labor Statistics reporting Thursday, but core inflation headed higher, in a sign that will reassure officials that the U.S. economy is still gaining strength.
The Consumer Price Index rose 0.2 percent in the month, slightly less than economists expected, and low enough to hold inflation down 1 annually, down from 1.1 percent the month before.
Thursday’s report, however, contained hints that inflation could accelerate in the months ahead, a development that would please officials at the Federal Reserve trying to hit a 2 percent inflation target even while disadvantaging consumers who have enjoyed slow price increases recently.
In particular, “core” inflation, which strips out volatile energy and food prices, rose from 2.1 percent to 2.2 percent in May. Because it moves around less, core inflation can provide a better guide to future inflationary pressures.
Rising rents accounted for the majority of the price gains over the past year, with the index for shelter posting the largest annual gain since 2007 at 3.4 percent.
Rising rents lifted core inflation higher and prevented falling food prices from dragging down headline inflation further.
Meanwhile, energy prices rose in May for the third month in a row after falling steeply in recent years. Even with the recent uptick, however, energy prices overall are down 10 percent over the past year and gasoline prices are down 17 percent.
Speaking at a press conference Wednesday, Fed chairwoman Janet Yellen suggested that falling energy and gas prices over the past two years have saved the typical U.S. household $1,400.
With the price of oil appearing to have stablized now, she added, it will stop holding inflation down. Fed officials have been looking for inflation to rise toward 2 percent as one of their preconditions for raising interest rates and tightening monetary policy. Inflation has not reached the Fed’s target in over four years.
