Reflecting a steep drop in energy prices, the Labor Department released a report on Wednesday showing a modest decrease in U.S. consumer prices in the month of May.
The report said the consumer price index edged down by 0.1 percent in May after rising by 0.2 percent in April. Economists had expected prices to come in unchanged.
The drop in consumer prices was primarily due to a sharp decline in energy prices, which plunged by 2.7 percent in May after jumping by 1.1 percent in April.
On the other hand, food prices rose by rose 0.2 percent, reflecting increases in four of the six major grocery store food group indexes.
Excluding food and energy prices, core consumer prices inched up by 0.1 percent in May, matching the uptick seen in the previous month. Core prices had been expected to rise by 0.2 percent.
The shelter index increased 0.2 percent, offsetting decreases in prices for apparel, airline fares, communication, and medical care services.
The report said consumer prices in May were up by 1.9 percent compared to the same month a year ago, a deceleration from the 2.2 percent year-over-year increase seen in April.
The annual rate of growth in core consumer prices also slowed to 1.7 percent in May from 1.9 percent in the previous month.
"From out of nowhere we have now had three months of unusual weakness in underlying prices, at the same time as the unemployment rate has plummeted below most estimates of its long-run sustainable rate," said Paul Ashworth, Chief U.S. Economist at Capital Economics. "That is a dilemma for Fed officials."
"Their first instinct was to attribute the weakness in core inflation to idiosyncratic factors, but this softness is a lot harder to ignore now," he added. "It won't stop the Fed from hiking interest rates later today, but it increases the downside risks to our forecast that there will be a further two rate hikes in the second half of this year."
The Labor Department released a separate report on Tuesday showing that producer prices were flat in the month of May, with an increase in prices for services offsetting a drop in fuel prices.
The producer price index for final demand was unchanged in May after climbing by 0.5 percent in April. Economists had expected the index to inch up by 0.1 percent.
Excluding food and energy prices, core producer prices rose by 0.3 percent in May following a 0.4 percent increase In April. Core prices were expected to rise by 0.2 percent.
by RTT Staff Writer
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