Inflation has been cut in half from last year’s peak, according to the May Consumer Price Index report, given economists hope that the Federal Reserve will take a break from interest rate hikes this month.
The CPI report shows that inflation rose four percent from last May, which is less than half of what it was at its peak in 2022, when it hit 9.1 percent year-over-year in June. Economic forecasts had predicted inflation would come in at 4.1 percent, meaning that the current economic climate is doing better than expected.
However, core CPI – which excludes volatile food and energy prices – rose 5.3 percent from last May, which is a far less-rosy picture of the state of the economy.
![Gas Prices Inflation](https://media.townhall.com/townhall/reu/o/2022/103/28bf02ba-c9c0-412b-aa37-0e533f7a6361-730x382.jpg)
A 3.6 percent drop in energy prices was a big part of the overall CPI drop. Food prices rose 0.2 percent. The U.S. economy also saw a 0.6 percent increase in shelter prices – and housing-related costs make up about one-third of the index’s weighting.
Used vehicle prices increased 4.4 percent, the same as in April, while transportation services were up 0.8 percent.
But the report also showed some good news for workers.
The tame CPI reading was good news for workers. Average hourly earnings adjusted for inflation rose 0.3% on the month, the Bureau of Labor Statistics said in a separate release. On an annual basis, real earnings are up 0.2% after running negative for much of the inflation surge that began about two years ago.
The consumer price report featured a growing discrepancy between the core and headline numbers. The all-items index usually runs ahead of the ex-food and energy measure, but that hasn’t been the case lately.
The Fed Response
The Federal Reserve is set to hold its regular meeting this week, and the Fed seems to be signaling that there will be a pause in rate hikes. Most investors seem to be pricing that in, as the market did not immediately react to the CPI report.
At their May meeting, the Fed raised the interest rate to between 5 percent and 5.25 percent, which is the highest level in 16 years. The Fed has signaled it will continue to look at interest rate hikes, as the board’s goal is to get inflation down to below two percent. They are aiming for a soft landing, hoping that the sudden spike in interest rates won’t cause a recession.
However, economists have been worried that a recession is just around the corner. Multiple economic experts and financial firms have pointed to signs that it was coming. However, the White House has remained confident that the U.S. can escape the current economic crisis without triggering another one.
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